Overconfidence in Investment Decisions: An Experimental Approach

22 Pages Posted: 25 Jan 2002

See all articles by Dennis Alexis Valin Dittrich

Dennis Alexis Valin Dittrich

Touro College Berlin; Bremen International Graduate School of Social Sciences (BIGSSS)

Werner Güth

Max Planck Institute for Research on Collective Goods; Luiss Guido Carli University

Boris Maciejovsky

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics

Date Written: December 2001

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 Classification: C91, D81, G11

Suggested Citation

Dittrich, Dennis Alexis Valin and Güth, Werner and Maciejovsky, Boris, Overconfidence in Investment Decisions: An Experimental Approach (December 2001). Available at SSRN: https://ssrn.com/abstract=296246 or http://dx.doi.org/10.2139/ssrn.296246

Dennis Alexis Valin Dittrich

Touro College Berlin ( email )

Am Rupenhorn 5
Berlin, 14055
Germany

Bremen International Graduate School of Social Sciences (BIGSSS) ( email )

Wiener Strasse
FVG-West
Bremen, DE 28215
Germany

Werner Güth (Contact Author)

Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Luiss Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

Boris Maciejovsky

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany
+49 3641 686626 (Phone)
+49 3641 686623 (Fax)

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