Overconfidence in investment decisions: An experimental approach

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We experimentally test overconfidence in investment decisions by offering participants the possibility to substitute their own for alternative investment choices. Overall, 149 subjects participated in two experiments, one with just one risky asset, the other with two risky assets. Overconfidence increases (i) with the absolute deviation from optimal choices, (ii) with task complexity, and (iii) decreases with uncertainty as indicated by the difference between willingness to pay and to accept. Terms of use: Documents in EconStor mayJEL Classification: C91, D81, G11.

Endogenous overconfidence in managerial forecasts

“…Consistent with this idea, Peterson (2007, p. 110) reports that ''depending on the study, between 65% and 80% [of people] believe they are above-average drivers.'' Overconfidence in decision-making has been identified among financial experts, such as investment bankers (Stael von Holstein, 1972), entrepreneurs (Cooper et al, 1988), executives (Russo andSchoemaker, 1992), and managers (Dittrich et al, 2005).…”

User Heterogeneity in Trading Systems: Assessing Trader's Market Predisposition via Personality Questionnaires

“…Markets suffer from biases as well and there is an ongoing debate to which extent their efficiency is affected [2]. Objectively irrelevant [19] and selectively presented information [6] can and does influence individual trading behavior. A promising approach to describe and explain financial decision-making may be the explicit consideration of psychological factors.…”

Illusion of expertise in portfolio decisions: an experimental approach

“…Maciejovsky and Kirchler (forthcoming) compare two different and independent measures of overconfidence in the context of an experimental asset market and show that overconfidence increases with experience, but is moderated by the methodology used. Dittrich, Güth and Maciejovsky (2001) also demonstrate in an experimental asset market that overconfidence (i) increases with the absolute deviation from optimal choice, (ii) increases with task complexity, and (iii) decreases with uncertainty.…”