Joy Leads to Overconfidence – and a Simple Remedy
46 Pages Posted: 12 Jan 2012
Date Written: January 3, 2012
Abstract
Overconfidence has been identified as a source of suboptimal decision making in many reallife domains, and it often has far-reaching consequences. Here, we demonstrate a causal mechanism that leads to overconfidence and show a simple, effective remedy for it in an incentive-compatible experimental study. We show that joy induces overconfidence if the reason for joy (an unexpected gift) is unrelated to the judgment task and if participants were not made specifically aware of our mood manipulation. In contrast, we observed wellcalibrated judgments among participants in a control group who were in their resting mood. Furthermore, we found well-calibrated judgments among participants who received the joyful mood induction together with questions that forced them to reflect on their current mood, its cause, and the (ir)relevance of its cause to our judgment tasks. Our findings suggest that being aware of one’s positive mood and the reason for that mood can be an effective shortterm remedy for overconfidence.
Keywords: judgment, mood, overconfidence, joy
JEL Classification: C91, D03
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Good Day Sunshine: Stock Returns and the Weather
By David Hirshleifer and Tyler Shumway
-
Winter Blues: A Sad Stock Market Cycle
By Mark J. Kamstra, Lisa A. Kramer, ...
-
The Halloween Indicator, 'Sell in May and Go Away': Another Puzzle
By Ben Jacobsen and Sven Bouman
-
Losing Sleep at the Market: The Daylight-Savings Anomaly
By Mark J. Kamstra, Lisa A. Kramer, ...
-
Are Investors Moonstruck? - Lunar Phases and Stock Returns
By Lu Zheng, Kathy Yuan, ...
-
Lunar Cycle Effects in Stock Returns
By Ilia D. Dichev and Troy D. Janes
-
Rain or Shine: Where is the Weather Effect?
By Ning Zhu and William N. Goetzmann
-
Rain or Shine: Where is the Weather Effect?
By Ning Zhu and William N. Goetzmann
-
By Ben Jacobsen and Wessel Marquering