We suggest an experimental design that can help opening the black box of investor behavior by documenting a channel of how biases affect portfolio performance. We study two of the most important investor biases (overreaction and overconfidence), show how they are related, and analyze their...

Overconfidence is the most prevalent judgment bias. Several studies find that overconfidence can lead to suboptimal decisions on the part of investors, managers, or politicians. This chapter explains which effects are usually summarized as overconfidence, shows how to measure these effects, and...