Judgmental overconfidence: Three measures, one bias?
AbstractOverconfidence is used to explain various instances of detrimental decision making. In behavioral economic and finance models, it is usually captured by misperceiving the reliability of signals and results in overweighting private information. Empirical tests of these models often fail to find evidence for the predicted effects of overconfidence. These studies assume, however, that a specific type of overconfidence, i.e. “miscalibration,” captures the underlying trait. We challenge this assumption and borrow the psychological methodology of single-cue probability learning to obtain a direct measure for misperceiving signal reliability. Our findings indicate that the perception of signal precision and measures of miscalibration are unrelated. We thus conclude that in order to test the theoretical predictions of the overconfidence literature in economics and finance, one cannot rely on the well-established miscalibration bias.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Psychology.
Volume (Year): 33 (2012)
Issue (Month): 1 ()
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Overconfidence; Miscalibration; Signal perception; Cognitive bias;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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