Judgmental Overconfidence, Self-Monitoring and Trading Performance in an Experimental Financial Market

Posted: 12 Apr 2005

See all articles by Bruno Biais

Bruno Biais

Centre for Economic Policy Research (CEPR)

Denis Hilton

University of Toulouse

Karine Mazurier

Universite de Toulouse

Sebastien Pouget

Toulouse School of Economics

Abstract

We measure the degree of overconfidence in judgment (in the form of miscalibration, i.e., the tendency to overestimate the precision of one's information) and self-monitoring (a form of attentiveness to social cues) of 245 participants and also observe their behaviour in an experimental financial market under asymmetric information. Miscalibrated traders, underestimating the conditional uncertainty about the asset value, are expected to be especially vulnerable to the winner's curse. High self-monitors are expected to behave strategically and achieve superior results. Our empirical results show that miscalibration reduces and self-monitoring enhances trading performance. The effect of the psychological variables is strong for men but non-existent for women.

Keywords: Psychology and finance, overconfidence, miscalibration, self-monitoring, experimental finance, trading game, asymmetric information, winner's curse

JEL Classification: C91, D82, G14

Suggested Citation

Biais, Bruno and Hilton, Denis and Mazurier, Karine and Pouget, Sebastien, Judgmental Overconfidence, Self-Monitoring and Trading Performance in an Experimental Financial Market. Review of Economic Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=686379

Bruno Biais

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Denis Hilton

University of Toulouse ( email )

41 Allées Jules Guesde - CS 61321
TOULOUSE
France

Karine Mazurier

Universite de Toulouse

Place Anatole France
Toulouse Cedex, F-31042
France

Sebastien Pouget (Contact Author)

Toulouse School of Economics ( email )

21 allée de Brienne
31015 Toulouse Cedex 6
France

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