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Illusion of expertise in portfolio decisions: an experimental approach

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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