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Illusion of expertise in portfolio decisions: an experimental approach

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  • Fellner, Gerlinde
  • Guth, Werner
  • Maciejovsky, Boris

Abstract

Overall, 72 subjects invest their endowment in four risky assets. Each combination of assets yields the same expected return and variance of returns. Illusion of expertise prevails when one prefers nevertheless the self-selected portfolio. After being randomly assigned to groups of four subjects are ask to elect their "expert" based on responses to a prior decision task. Using the random price machanism reveals that 64% of the subjects prefer their own portfolio over the average group portfolio or the expert's portfolio. Illusion of expertise is shown to be stable individually, over alternatives, and for both eliciting methods, willingness to pay and to accept.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 55 (2004)
Issue (Month): 3 (November)
Pages: 355-376

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Handle: RePEc:eee:jeborg:v:55:y:2004:i:3:p:355-376

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References

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Cited by:
  1. Caliendo, Frank & Huang, Kevin X.D., 2008. "Overconfidence and consumption over the life cycle," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1347-1369, December.
  2. Adam S. Goodie & Diana L. Young, 2007. "The skill element in decision making under uncertainty: Control or competence?," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 189-203, June.
  3. Marion Eberlein & Judith Przemeck, 2008. "Whom will you choose? - Collaborator Selection and Selector’s Self-Prediction," Bonn Econ Discussion Papers bgse12_2008, University of Bonn, Germany.

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