IDEAS home Printed from https://ideas.repec.org/a/vrs/irfinc/v5y2020i2p33-46n1005.html

Why Would Overconfidence Generate Lower Performance? Insights from an Experimental Study

Author

Listed:
  • Martin Boyer M.

    (Research Chair, Power Corporation of Canada, Université de Montréal, Montréal, Canada)

  • Dumont Laurence

    (Researcher, Power Corporation of Canada, Université de Montréal, Montréal, Canada)

  • Martin Jérôme

    (Researcher, Power Corporation of Canada, Université de Montréal, Montréal, Canada)

  • Léger Pierre-Majorique

    (Researcher, Power Corporation of Canada, Université de Montréal, Montréal, Canada)

Abstract

Overconfidence is recognized as one of the most important behavioral biases in decision-making. Using results from a controlled lab experiment we find that participants who display more confidence perform worse than other participants, whereas participants who say they are confident do not perform worse. We also find evidence that more confident traders also have lower visual attention levels (using an eye-tracking software), lower visual working memory (measured using an “n-back 1” test), and higher physiological arousal (using electro-dermal activity). Although conducted using a small sample of novice traders, our findings represent a first step in explaining how overconfidence and performance are related in financial markets.

Suggested Citation

  • Martin Boyer M. & Dumont Laurence & Martin Jérôme & Léger Pierre-Majorique, 2020. "Why Would Overconfidence Generate Lower Performance? Insights from an Experimental Study," International Review of Financial Consumers, Sciendo, vol. 5(2), pages 33-46.
    • Handle: RePEc:vrs:irfinc:v:5:y:2020:i:2:p:33-46:n:1005
    DOI: 10.36544/irfc.2020.5-2.5
    as

    Download full text from publisher

    File URL: https://doi.org/10.36544/irfc.2020.5-2.5
    Download Restriction: no
    File URL: https://libkey.io/10.36544/irfc.2020.5-2.5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:irfinc:v:5:y:2020:i:2:p:33-46:n:1005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.sciendo.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.