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 Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

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). CESifo Working Paper Series No. 626. Available at SSRN: https://ssrn.com/abstract=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 of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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)

Register to save articles to
your library

Register

Paper statistics

Downloads
1,215
Abstract Views
4,860
rank
16,026
PlumX Metrics