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Judgmental overconfidence: Three measures, one bias?

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  • Fellner, Gerlinde
  • Krügel, Sebastian

Abstract

Overconfidence 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.

Suggested Citation

  • Fellner, Gerlinde & Krügel, Sebastian, 2012. "Judgmental overconfidence: Three measures, one bias?," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 142-154.
  • Handle: RePEc:eee:joepsy:v:33:y:2012:i:1:p:142-154
    DOI: 10.1016/j.joep.2011.07.008
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    References listed on IDEAS

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    1. repec:spr:scient:v:111:y:2017:i:3:d:10.1007_s11192-017-2371-5 is not listed on IDEAS
    2. Kauko, Karlo & Palmroos, Peter, 2014. "The Delphi method in forecasting financial markets— An experimental study," International Journal of Forecasting, Elsevier, vol. 30(2), pages 313-327.
    3. Lambert, Jérôme & Bessière, Véronique & N’Goala, Gilles, 2012. "Does expertise influence the impact of overconfidence on judgment, valuation and investment decision?," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1115-1128.
    4. Agata Kliber & Blanka Let & Aleksandra Rutkowska, 2016. "Socio-demographic characteristics of investors in the Warsaw Stock Exchange – How they influence the investment decision," Bank i Kredyt, Narodowy Bank Polski, vol. 47(2), pages 91-118.
    5. Helen X. H. Bao & Steven Haotong Li, 2016. "Overconfidence And Real Estate Research: A Survey Of The Literature," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-24, September.
    6. Argentiero, Amedeo & Bovi, Maurizio & Cerqueti, Roy, 2015. "Over consumption. A horse race of Bayesian DSGE models," MPRA Paper 66445, University Library of Munich, Germany.
    7. Fellner-Röhling, Gerlinde & Krügel, Sebastian, 2014. "Judgmental overconfidence and trading activity," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 827-842.
    8. Nguyen, Viet Hoang & Claus, Edda, 2013. "Good news, bad news, consumer sentiment and consumption behavior," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 426-438.
    9. Lennart Erixon & Louise Johannesson, 2015. "Is the psychology of high profits detrimental to industrial renewal? Experimental evidence for the theory of transformation pressure," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 475-511, April.
    10. repec:eee:jbfina:v:84:y:2017:i:c:p:68-87 is not listed on IDEAS

    More about this item

    Keywords

    Overconfidence; Miscalibration; Signal perception; Cognitive bias;

    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; Information and Knowledge; Communication; Belief; Unawareness

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