This topic is covered in details in "The Behavioral Biases of Individuals" of Portfolio Management.

Some investors behave highly irrationally and make predictable errors. Behavior finance is a field of finance that proposes psychology-based theories to explain stock market anomalies. Within behavioral finance, it is assumed that the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes. Analyst forecasts, as predictions made by financial analysts about a company's future performance, can be subject to biases and behavioral influences.

Overconfidence. Most people consider themselves to be better than average in most things they do. For example, 80% of drivers contend that they are better than "average" drivers. Is that really possible? Overconfident analysts may be more optimistic about a company's prospects, leading to potentially biased or overly optimistic forecasts. Studies show that money managers, advisors, and investors are consistently overconfident in their ability to outperform the market. Most fail to do so, however.

Illusion of control bias occurs when individuals incorrectly believe that they can control or influence outcomes, or for individuals to think that he have more control over the situation than he actually do. Hence, they have a false impression that future event are due to their skill rather than due to luck. Concentrated positions in own-company stock are common among those who are affected by illusion of control bias. Employees may believe that, because they can control their performance at work, they can influence their company's results. In reality, market prices are driven by a multitude of factors that are far beyond the control of any individual - even top managers.

Individuals demonstrate conservatism bias by maintaining their previous beliefs and inadequately incorporating (or "under-reacting to") new information, even when this new information is significant. Those analysts affected by conservatism bias will not update their forecasting after receiving conflicting information.

Representativeness bias. Analysts may rely on mental shortcuts or stereotypes when making forecasts, leading to biases based on limited information or past experiences. For instance, they may overgeneralize past performance or make forecasts based on superficial similarities between the current company and previous successful or unsuccessful companies.

One way to identify representativeness bias is to determine whether the person is deriving information from the past and using that information in current investment strategy. For example, a mutual fund manager chooses an investment just because the current CEO did a good job in some other company in the past.

Confirmation bias. Analysts may have a tendency to seek information that confirms their pre-existing beliefs or initial analysis. This confirmation bias can influence their forecasts, as they may selectively consider information that supports their views and overlook contradictory evidence. It is a particular concern for analysts conducting research and for all investors during periods of extreme prices (bubbles and crashes). Investors who are affected by confirmation bias may hold an un-diversified portfolio (possibly due to a concentrated position in own-company stock).