Modern financial economics assumes that we behave with extreme rationality; but, we do not. Furthermore, our deviations from rationality are often systematic. Behavioral finance relaxes
the traditional assumptions of financial economics by incorporating these observable, systematic, and very human departures from rationality into standard models of financial markets. Overconfidence is one such departure.Models that assume market participants are overconfident yield one central prediction: overconfident investors will trade too much.
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Men trade more than women and thereby reduce
their returns more so than do women. Furthermore, these differences are most pronounced between single men and single women.