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Overconfidence in Investment Decisions: An Experimental Approach
Dennis Alexis Valin Dittrich Jacobs University Werner Guth Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Boris Maciejovsky Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics December 2001 CESifo Working Paper Series No. 626 Abstract: 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.
Keywords: Risky Decision Making, Behavioral Finance, Portfolio Choice, Experimental Economics JEL Classifications: C91, D81, G11 Working Paper SeriesDate posted: January 25, 2002 ; Last revised: September 01, 2004Suggested CitationContact Information
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