Overconfidence, Risk Aversion and Individual Financial Decisions in Experimental Asset Markets
AbstractWe investigate the influence of overconfidence and risk aversion on individual financial decision making in the experimental asset markets of the Smith, Suchanek and Williams (1988) type, with no informational asymmetries. Subjects, based on their pre-experimental overconfidence scores, were assigned to the two types of markets: least overconfident subjects formed five “rational” markets and most overconfident subjects formed five “overconfident” markets. The asset market experiment was followed by post hoc risk aversion measurement. Our results revealed that in the suggested setting, performance and trading activity were overconfidence dependent only for female participants. Mistakes in price forecasting, that are negatively correlated with overconfidence, could partially account for the increase in trading activity and losses. In the decreased sample differences in individual outcomes were overconfidence and not risk aversion driven.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 53114.
Date of creation: 2010
Date of revision: Jan 2014
overconfidence; miscalibration; overprecision; risk aversion; financial decisions; economic experiments;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-CBE-2014-02-02 (Cognitive & Behavioural Economics)
- NEP-EXP-2014-02-02 (Experimental Economics)
- NEP-UPT-2014-02-02 (Utility Models & Prospect Theory)
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