ABSTRACT
Emotions are an important part of the decision-making process. This is especially true for decisions that involve a high degree of uncertainty, such as investment decisions. Sometimes, emotion can overcome logic in this process. Too much optimism leads investors to underestimate risk and overestimate expected performance. Optimistic investors tend to seek good-story stocks and be less critical. Pessimistic investors tend to be more analytical. Extended, extreme optimism can cause price bubbles. On the other hand, some sensation-seeking investors look for the gambling-like emotions from excessive trading.
