Question

Please pick a behavioural bias and explain shortly by giving an example.

Answer 1

Overconfidence Bias:

Overconfidence bias is when you are too much confident about your skills, knowledge, ability etc. It can be a dangerous bias and is very common in capital markets. Most common manifestations include the illusion of control, optimism, and the desirability effect.

example: Suppose you are very sure about the pattern of the price movement of a stock. You are so confident that you decide to put your maximum capital on the trade. But, most of your trading partners, friends are not very sure about it.