Male and overconfident groups overinvest due to inflated perceived ability to beat the odds

Abstract

Organizational decisions are often made by groups rather than individuals. Depending on the group composition, each member's characteristics—like gender and motivated beliefs—can influence the final group investment decision. To capture this, we design two types of investment situations in a randomized controlled laboratory experiment—one with fixed chances of success and one with performance-dependent chances of success. This novel design entails the perceived ability to “beat the odds” of the investment and thus models real-life investment situations more accurately than standard lottery choice. Our results demonstrate the benefits of mixed group composition in terms of both gender and overconfidence: Groups with all men and/or all overconfident group members consistently overinvest when a possibility to “beat the odds” is present, but not in standard situations. We explore several channels for our results and find that (i) individual probability perception, (ii) leader responsibility allocation and (iii) spillover effects from priming show significant effects.

Information Sources for Investment Decisions: Evidence from Japanese Investors

“…Sharing information with group members is an effective way to reduce the risk of receiving information from an individual source. Our results are consistent with the findings of previous studies that men and unmarried investors are generally confident and make decisions independently (Renerte et al 2023;Arti and Sunita 2011) but are also ready to take professional advice during abnormal times, such as the ongoing COVID-19 pandemic (Rabbani et al 2021).…”