Can Information Alleviate Overconfidence? A Randomized Experiment on Financial Market Predictions

41 Pages Posted: 22 Oct 2019 Last revised: 6 Apr 2020

See all articles by Takanori Ida

Takanori Ida

Kyoto University

Ryo Okui

Seoul National University

Date Written: April 3, 2020

Abstract

In this study, we examine how information provision affects the degree of overconfidence using an online experiment. The 4,210 experimental participants engaged in stock market prediction exercises were asked to evaluate their absolute and relative performance. We conducted a randomized controlled trial such that randomly selected participants obtained information about their own performance and/or the distribution of others’ performances before evaluating their performances. We find that while participants exhibit overconfidence bias, this can be alleviated by information provision and that the effect of the elimination of overconfidence is stronger when only partial information, rather than complete information, is provided. Further, the results indicate that the mere provision of information, even if it is consistent with prior beliefs, decreases the degree of overconfidence.

Keywords: Overconfidence, information provision, randomized controlled trial, online experiment, stock market prediction

JEL Classification: C91, D83, D91, G41

Suggested Citation

Ida, Takanori and Okui, Ryo, Can Information Alleviate Overconfidence? A Randomized Experiment on Financial Market Predictions (April 3, 2020). Available at SSRN: https://ssrn.com/abstract=3467894 or http://dx.doi.org/10.2139/ssrn.3467894

Takanori Ida

Kyoto University ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Ryo Okui (Contact Author)

Seoul National University ( email )

Seoul
Korea, Republic of (South Korea)

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