In recent years, there has been rising interest in a field called behavioral finance which incorporates psychological methods in analyzing investor behavior. However, there is also criticism that most such arguments in behavioral finance are simply ad hoc, applying decision making bias exogenously, and only introducing decision making bias conveniently in order to explain certain phenomenon in the financial market.

With such underlying arguments, this analysis aims to show that decision making bias discussed in financial economics appears in a bottom-up fashion in the financial market. Above all, this research focuses on overconfident decision making which has been under the spotlight in recent years.

To discuss the problem, we employ agent-based modeling. In this research, we construct artificial stock market that contains several types of investors: fundamentalists and non-fundamentalists.

As a result of intensive analysis, we find that overconfident investors are generated in a bottom-up fashion in the market. Furthermore, we also find that overconfident investors have the ability to contribute to market efficiency.

• Legal notice:
  

  Copyright (c) Pielaszek Research, all rights reserved.
  The above materials, including auxiliary resources, are subject to Publisher's copyright and the Author(s) intellectual rights. Without limiting Author(s) rights under respective Copyright Transfer Agreement, no part of the above documents may be reproduced without the express written permission of Pielaszek Research, the Publisher. Express permission from the Author(s) is required to use the above materials for academic purposes, such as lectures or scientific presentations.
  In every case, proper references including Author(s) name(s) and URL of this webpage: https://science24.com/paper/14696 must be provided.