An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity

Abstract

We perform an asset market experiment in order to test the central result coming from the new overconfidence models, namely that high levels of overconfidence lead to enhanced trading activity. We find that overconfidence does engender additional trade. Unlike previous experimental or survey-based evidence, ours is the first study to find this to be so when overconfidence is measured using a calibration-based approach that is most akin to the theoretical literature. Further, we investigate the contention that gender influences trading activity through overconfidence. There is no evidence of this, as women have about the same level of both overconfidence and trading activity as do men, and gender is not a useful explanatory variable of trading in a multivariate regression.