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Self-Attribution Bias in Consumer Financial Decision-Making: How Investment Returns Affect Individuals' Belief in Skill

Journal of Behavioral and Experimental Economics, 52, pp. 23-28

18 Pages Posted: 14 Dec 2013 Last revised: 13 Jan 2015

Arvid O. I. Hoffmann

University of Adelaide - Business School; Network for Studies on Pensions, Aging and Retirement (Netspar)

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

Date Written: May 23, 2014

Abstract

Self-attribution bias is a long-standing concept in psychology research and refers to individuals’ tendency to attribute successes to personal skills and failures to factors beyond their control. Recently, this bias is also being studied in household finance research and is considered to underlie and reinforce investor overconfidence. To date, however, the existence of self-attribution bias amongst individual investors is not directly empirically tested. That is, it remains unclear whether good (vs. bad) returns indeed make investors believe more (vs. less) strongly that skills drive their performance. Using a unique combination of survey data and matching trading records of a sample of clients from a large discount brokerage firm, we find that: (1) the higher the returns in a previous period are, the more investors agree with a statement claiming that their recent performance accurately reflects their investment skills (and vice versa); and (2) while individual returns relate to more agreement, market returns have no such effect.

Keywords: Consumer Financial Decision-Making, Household Finance, Investment Decisions, Self-Attribution Bias

JEL Classification: G11, D1, M3

Suggested Citation

Hoffmann, Arvid O. I. and Post, Thomas, Self-Attribution Bias in Consumer Financial Decision-Making: How Investment Returns Affect Individuals' Belief in Skill (May 23, 2014). Journal of Behavioral and Experimental Economics, 52, pp. 23-28. Available at SSRN: https://ssrn.com/abstract=2367230 or http://dx.doi.org/10.2139/ssrn.2367230

Arvid O. I. Hoffmann (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Network for Studies on Pensions, Aging and Retirement (Netspar)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands
+31 43 38 83899 (Phone)
+31 43 38 84875 (Fax)

HOME PAGE: http://www.thomas-post.com

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

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