Investors Selectively Forget Their Money-Losing Stocks – They Often Have A Biased Memory – Why Are They So Cocky?
Philip Fernbach, University of Colorado Boulder and Daniel Walters, INSEAD
The Research Brief is a short take about interesting academic work.
The big idea
Stock investors mistakenly remember their past investments as better than they actually were, which leads them to be overconfident about how they’ll perform in the future, according to our new study.
Past research has shown that investors tend to be very overconfident. But there’s been little explanation as to why. We wondered whether a biased memory might play a role.
So we recruited about 900 investors – mostly men, who dominate the finance industry – through online forums and panels and conducted three studies.
In the first, we asked 401 investors a series of questions intended to estimate their level of overconfidence, glean the...
