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Overconfidence and Its Consequences in Financial Markets
Abstract
This chapter is about overconfidence in financial markets. This occurs when individuals and institutions exaggerate their knowledge and capabilities, leading to over-trading, greater risks, and market volatility. Overconfidence can fuel asset bubbles, bad decisions, and costly mergers with ramifications for market liquidity and investor confidence. Remedies are proposed, including investor education, AI-driven analytics, regulatory adjustments, and ethical awareness. It emphasizes humility and accountability among financial institutions, working toward mitigating overconfidence so as to enhance stability and efficiency in the markets.
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