Ambiguity and Overconfidence
New York University (NYU) - Department of Finance
Yehuda (Yud) Izhakian
New York University (NYU) - Leonard N. Stern School of Business
Hebrew University of Jerusalem - Department of Finance
February 24, 2011
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, D83working papers series
Date posted: March 2, 2011 ; Last revised: March 7, 2011
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