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Thoughts on quantifying overconfidence in economic experiments

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  • Michailova, Julija
  • Katter, Joana K. Q.

Abstract

This article illustrates the difficulties of quantifying overconfidence in economic experiments and suggests a procedure for the development of the reliable overconfidence measurement instrument (test). Following the suggested two-stage procedure a sample measure of overconfidence is developed. First a pilot test is conducted to divide the initial fifty items into three difficulty levels: hard, moderate and easy questions. A final test was compiled of six questions of each difficulty levels. In the second phase a replicability check was run with the final instrument.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44399.

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Date of creation: Jan 2013
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Handle: RePEc:pra:mprapa:44399

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Keywords: overconfidence quantification; instrument development; economic experiment.;

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  1. Meir Statman & Steven Thorley & Keith Vorkink, 2006. "Investor Overconfidence and Trading Volume," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 19(4), pages 1531-1565.
  2. Michailova, Julija, 2010. "Overconfidence and bubbles in experimental asset markets," MPRA Paper 26388, University Library of Munich, Germany.
  3. Kliger, Doron & Levy, Ori, 2010. "Overconfident investors and probability misjudgments," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 39(1), pages 24-29, January.
  4. Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2004. "The Impact of Experience on Risk Taking, Overconfidence, and Herding of Fund Managers: Complementary Survey Evidence," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-292, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  5. Kirchler, Erich & Maciejovsky, Boris, 2002. " Simultaneous Over- and Underconfidence: Evidence from Experimental Asset Markets," Journal of Risk and Uncertainty, Springer, Springer, vol. 25(1), pages 65-85, July.
  6. Brad M. Barber & Terrance Odean, 2001. "Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(1), pages 261-292, February.
  7. Richard Deaves & Erik Lüders & Guo Ying Luo, 2009. "An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity," Review of Finance, European Finance Association, European Finance Association, vol. 13(3), pages 555-575.
  8. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
  9. Markus Glaser & Martin Weber, 2007. "Overconfidence and trading volume," The Geneva Papers on Risk and Insurance Theory, Springer, Springer, vol. 32(1), pages 1-36, June.
  10. Benos, Alexandros V., 1998. "Aggressiveness and survival of overconfident traders," Journal of Financial Markets, Elsevier, Elsevier, vol. 1(3-4), pages 353-383, September.
  11. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, American Finance Association, vol. 40(3), pages 793-805, July.
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