Overconfidence and risk seeking in credit markets: an experimental game

Peón, David; Antelo, Manel; Calvo, Anxo

doi:10.1007/s11846-015-0166-8

Cited by 13 publications

(15 citation statements)

References 58 publications

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“…Decision makers, in practice, perceive less risk because they use a small sample of information to draw firm conclusions; furthermore, they do not recognize that some important firms' tasks are beyond their control. This evidence is also confirmed by Peon et al (2016), who find that the investment risk behavior of people is mainly driven by the combined effect of high levels of overconfidence and risk-seeking.…”

Section: Risk Aversionsupporting

confidence: 65%

Reviewing cognitive distortions in managerial decision making

Abatecola

Caputo

Cristofaro

2018

JMD

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Purpose Why and how do cognitive distortions in managerial decision making occur? All organizations are imperfect systems (Katz and Kahn, 1966), with wrong decisions often just round the corner. As a consequence, addressing these important questions continues to be particularly lively in the management development area, especially in terms of its intended contribution to the de-biasing activity. Thus, the purpose of this paper is to provide the current scientific dialogue on the topic with updated lenses, which can also be innovative from some aspects. Design/methodology/approach The review framework is based on the recent, impactful article on biases in managerial decision making by Kahneman et al. (2011), and on Bazerman and Moore’s (2013) perspective on emanating heuristics, considered as the causes of biases. Accordingly, the authors derive four intertwined thematic clusters of heuristics, through which the authors systematically group and critically analyze the management literature mostly published on the topic since 2011. Findings From the analyzed clusters the authors propose an integrative framework of emanating heuristics, which focuses on the co-evolving relationships and potentially self-reinforcing processes in and between them. Originality/value The value of the contribution is threefold: from a methodological perspective, to the authors’ knowledge, the studies adopted as the basis of the analysis have not yet been simultaneously used as a comprehensive ground for updated reviews on this topic; from a conceptual perspective, the emerging integrative co-evolutionary framework can help explain the dangerous connections among cognitive traps and emanating heuristics; and from a practical perspective, the resulting framework can also be helpful for future de-biasing attempts in the business arena.

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Section: Risk Aversionsupporting

confidence: 65%

Reviewing cognitive distortions in managerial decision making

Abatecola

Caputo

Cristofaro

2018

JMD

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“…Uncertainty is different from risk; it is incalculable and not fully predictable. For this reason, overconfidence manifests itself in the evaluation phase of uncertain future (Peón et al. , 2016) and determines which information is taken into account and which is not (Peng and Xiong, 2006).…”

Section: Literature Reviewmentioning

confidence: 99%

Evaluation of investment preference with phantasy, emotional intelligence, confidence, trust, financial literacy and risk preference

Aren

Hamamcı

2022

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PurposeThere is strong excitement during Ponzi schemes and financial bubble periods. This emotion causes investors to turn to “unknown and new investment instruments”. This study, the factors that made “unknown and new investment instruments” preferable to “known and experienced investment instruments” were investigated.Design/methodology/approachIt was taken into account unconscious like phantasy, emotional like emotional intelligence, both affective and cognitive like financial literacy and subjective beliefs like trust and overconfidence. In addition, risk preferences were measured with four different risk variables. In this context, data were collected by online survey method between November 2020 and May 2021 with convenience sampling. First, the data were collected from 832 participants in the pilot study. Additional data were also collected using convenience sampling and online surveys, and a total of 1,692 participants were obtained. Data were analyzed using Statistical Package for the Social Sciences (SPSS) 25 and AMOS 24.FindingsAs a result of the analyses made, the variables that lead investors to choose “unknown and new investment instruments” were determined as risky investment intention, phantasy, risk taking/risk avoidance, confidence, risk tolerance and subjective financial literacy. Trust and risk perception have a very weak effect on preferences. However, no effect of emotional intelligence and objective financial literacy was detected. In addition, a moderately positive and significant relationship was found between objective and subjective financial literacy. Subjective financial literacy was found to have a strong and significant relationship with emotional intelligence, confidence, trust, risky investment intention and phantasy.Originality/valueThis study investigates the factors underlying individuals' investment preferences from a broad perspective. We think that this study is unique in this structure and wide variables. We believe that the findings obtained in this manner are unique to both academics and practitioners. We also believe that the findings of the study will make an important contribution to understanding participation behavior in various Ponzi schemes and financial bubbles.

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“…12 Experiments have shown that overconfident individuals tend to be overconfident about their accuracy in answering questions (Harvey, 1997). Therefore, it can be assessed by comparing people's answers to a set of questions with their self-assessment of the accuracy of their answers (Alicke et al, 1995;Klayman et al, 1999;Larrick et al, 2007;Peon et al, 2014;Ronis and Yates, 1987). This would constitute a clever measure of overconfidence that uses information that is independent of the public policy being analyzed.…”

Section: Overconfidence: Overestimation and Overplacementmentioning

confidence: 99%

“…After nine questions, one last asked respondents about the number they believed they had answered correctly, a common approach in the literature (Ronis and Yates, 1987). 13 We measure overestimation at the individual level i by subtracting participants' actual score from their self-reported estimate (Moore and Healy, 2008;Peon et al, 2014):…”

Section: Overconfidence: Overestimation and Overplacementmentioning

confidence: 99%

Overconfidence and Gun Preferences: How Behavioral Biases Affect Your Safety

Cafferata¹,

Domínguez²,

Scartascini³

2023

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Overconfidence leads to risky behavior, including when people are around guns. Does overconfidence also shape attitudes about gun ownership and use? We evaluate this possibility by conducting nationally representative surveys in six countries in the Americas, including the United States. Results show that overconfident individuals are more willing to accept the use of guns and more likely to declare their willingness to use guns. These results indicate that overconfidence is a significant behavioral trait correlated with attitudes toward weapons handling, ownership, carrying, and use. Overall, over-confidence could lead, in equilibrium, to lower regulation than optimal and a higher amount of guns, even before considering the effect of the electoral system, lobbying, and campaign contributions. Efforts to correct the biases of individuals confronted with making decisions about guns should be a priority, especially in regulatory contexts. Information about actual performance and the risks entailed by wrong choices is a must. Obliging individuals to reflect on their choices may also help correct observed biases.

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Overconfidence and risk seeking in credit markets: an experimental game

Cited by 13 publications

References 58 publications

Reviewing cognitive distortions in managerial decision making

Reviewing cognitive distortions in managerial decision making

Evaluation of investment preference with phantasy, emotional intelligence, confidence, trust, financial literacy and risk preference

Overconfidence and Gun Preferences: How Behavioral Biases Affect Your Safety

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