Do Teams Alleviate or Exacerbate Overreaction in Beliefs?
129 Pages Posted: 11 Feb 2021 Last revised: 28 Jan 2025
Date Written: February 10, 2021
Abstract
We investigate whether teams exhibit increased or reduced overreaction in expectation formation relative to individuals in a financial context. A field analysis of money managers operating both individually and as part of a team shows that teams attenuate their members’ overreaction to the recent performance of an investment. In preregistered randomized experiments where expectations about future returns are elicited directly, we find consistent evidence of lower overreaction in teams. A quantitative decomposition of this team effect shows that the reduced overreaction stems from a “self-selection” mechanism, whereby the most biased team members choose to influence the team decision less.
Keywords: Expectation Formation, Extrapolation, Teams, Lab Experiment, Behavioral Finance, Performance
JEL Classification: G23, G41, D91
Suggested Citation: Suggested Citation
Do Teams Alleviate or Exacerbate Overreaction in Beliefs?
(February 10, 2021). Available at SSRN: https://ssrn.com/abstract=3783421 or http://dx.doi.org/10.2139/ssrn.3783421