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Ambiguity and OverconfidenceMenachem BrennerNew York University (NYU) - Department of Finance Yehuda (Yud) IzhakianNew York University (NYU) - Leonard N. Stern School of Business Orly SadeHebrew University of Jerusalem - Department of Finance February 24, 2011 Abstract: There are two phenomena in behavioral finance and economics which are seemingly unrelated and have been studied separately; overconfidence and ambiguity aversion. In this paper we are trying to link these two phenomena providing a theoretical foundation supported by evidence from an experimental study. We derive a model, based on the max-min ambiguity framework that links overconfidence to ambiguity aversion. In the experimental study we find that overconfidence is decreasing in ambiguity, as predicted by our model.
Number of Pages in PDF File: 36 Keywords: Ambiguity Aversion, Familiarity, Overconfidence JEL Classification: C65, D81, D83 working papers seriesDate posted: March 2, 2011 ; Last revised: March 7, 2011Suggested CitationContact Information
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