Behavioral Finance 101 (Part 6)
- Overconfidence and loss aversion can both lead to poor investment performance.
- Overconfident investors tend to hold overly concentrated investment portfolios, which can increase idiosyncratic risk, and overall risk of loss.
- Loss aversion can lead to under-participation in the markets, such as by going to cash when the markets begin to falter. This too can degrade investment returns over time.