Behavioural Bias and Strategic Response: Focusing on Scenario-Based Responses to Overconfidence and Herd Effect in Individual Investors
Year: 2025
Type: article
Abstract: Behavioral finance suggests that overconfidence leads investors to overestimate their capabilities and misjudge market noise; the herd effect triggers group irrationality through social media emotional contagion, exacerbating decision-making failures. This study explores the decision-making bias of individual investors due to overconfidence and herd effect in retail-dominated markets, analyses its mechanism of action, and proposes non-quantitative intervention tools. This paper reviews a lightweight toolkit: a cognitive self-assessment scale enforcing pre-trade answers to core risk questions reduces average LUNA event losses by 52%; an emotional firewall that monitors social platform buzzwords and triggers a cooling-off period improves measured trade cancellation rates by 72%; and a decision review template comparing buy rationale with actual results reduces repeat error rates by 61%. The toolkit significantly reduces the frequency and volatility of irrational trades (28% annualized reduction). The research constructs a ‘cognitive-emotional-behavioral’ three-stage intervention model, which transforms behavioral finance theory into a practical decision-blocking tool, providing investors with self-help solutions and regulators with a basis for optimizing market regulations.
Author: Yijie Ding
Institution: Nanjing University of Aeronautics and Astronautics
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4410128189