Risk tolerance of individual investors and a comprative analysis on concept of overconfidence

The notion of that "Homo Economicus" will make rational decisions in all conditions, has been started to be questioned with Behavioral Finance. Contrary to Expected Utility Theory of Traditional Finance, Behavioral Finance has come into prominence "Prospect Theory". According to this theory, Behavioral Finance tries to explain the inconsistent behaviours and mistakes of "Rational Individual" with the help of science disciplines like psychology, sociology and anthropology. In their decision models, investors have to use at least four factors as input. These are generally targets, time horizon, financial stability and risk tolerance of investors. The first three can be evaluated by objective measurements but Risk Tolerance can be evaluated by subjective measurements. The aim of this study is to determine the risk tolerance levels of individual investors and clearify the relations between the concept of overconfidence which effects risk tolerance levels. Within the scope of this research answers are searched to questions such as "What are traditional, behavioral and personal finance theories?", "What are the risk tolerance levels of investors?", "What are the overconfidence levels of investors?", "What type of affections occur between risk tolerance and overconfidence of investors over demographic factors?" In the scope of this study, a survey has been conducted to 520 Individual investors which are resident in İstanbul, Ankara and İzmir. According to analysis results of this survey, indications are found such as, overconfidence and risk tolerance levels of individual investors differs due to demographic factors and addingly the overconfidence levels of these investors alters their risk tolerance levels and constituents. KEY WORDS: Behavioral Finance, Personal Finance, Personal Financial Planning, Risk Tolerance, Overconfidence.