Overconfidence and the Political and Financial Behavior of a Representative Sample

We study the relationship between overconfidence and the political and financial behavior of a nationally representative sample. Consistent with theoretical predictions, our findings indicate that excessive confidence in one's judgment is associated with lower portfolio diversification, greater stock price forecasting errors, and more extreme political views. We also find that overconfidence correlates with an increased likelihood of voting absenteeism. Importantly, our analysis bridges the gap between the financial and political literature by showing that overprecision-induced behavior in the financial domain is associated with overprecise behavior in the political domain, and vice versa. In a companion survey that elicits overconfidence across various knowledge domains, we further show that overconfidence is consistent within respondents and across knowledge domains. All of these findings suggest that overconfidence is a pervasive bias that permeates many aspects of people's lives.