Overconfidence, Self-Attribution and Herding Behaviors

In behavioral finance, **overconfidence** refers to investors' tendency to overestimate their knowledge and abilities, leading to overly risky decisions. **Self-attribution** is when individuals credit their successes to their skill while blaming failures on external factors, reinforcing their overconfidence. **Herding behavior** occurs when investors follow the crowd, believing that many people can’t be wrong, which can lead to market bubbles or crashes. Together, these behaviors can distort rational decision-making, causing investors to take excessive risks and potentially experience greater losses. Understanding these concepts helps investors make more informed decisions and recognize their cognitive biases.