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Is Overconfidence a Risk Factor for Excessive Trading?

Étienne Gagnon1,2, Isabelle Giroux3,4, Serge Sévigny5,4

  • 1École de psychologie, Université Laval, GRIF-Jeu, Quebec City, Canada. etiennegagnon11@ulaval.ca.

Journal of Gambling Studies
|February 18, 2026
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Summary
This summary is machine-generated.

Overestimating trading performance increases the risk of excessive trading among individual investors. This cognitive distortion, similar to gambling, highlights a key factor in problematic financial decision-making.

Keywords:
Excessive tradingIndividual investorsOverconfidenceStock trading simulationTechnical analysis

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Area of Science:

  • Behavioral Finance
  • Cognitive Psychology
  • Financial Markets

Background:

  • Gambling and trading share risks and potential for excessive behavior.
  • Cognitive distortions, like the illusion of control in gambling, are understudied in excessive trading.
  • Overconfidence, encompassing overestimation, overplacement, and overprecision, is a potential cognitive factor in excessive trading.

Purpose of the Study:

  • To investigate the link between overconfidence in simulated financial decision-making and excessive trading risk.
  • To examine how overestimation and overplacement in technical analysis trading relate to excessive trading likelihood.

Main Methods:

  • Seventy individual investors using technical analysis participated in a simulated trading task.
  • Overestimation and overplacement were assessed during the simulated trading.
  • Excessive trading risk was measured using an adapted Problem Gambling Severity Index.

Main Results:

  • Overestimation, not overplacement, significantly differentiated investors with low versus high risk of excessive trading.
  • Higher levels of overestimation in simulated trading correlated with a greater likelihood of moderate-to-high excessive trading risk.
  • Findings align with studies on problem gambling, where cognitive distortions increase risk.

Conclusions:

  • Overestimation is a significant cognitive factor associated with excessive trading risk in individual investors.
  • The findings suggest potential interventions targeting overconfidence to mitigate excessive trading.
  • Further research should explore adaptations to measurement tools and decision-making tasks to deepen understanding of excessive trading risk factors.