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Illusion of Expertise in Portfolio Decisions - An Experimental Approach

  • Gerlinde Fellner
  • Werner Güth
  • Boris Maciejovsky

Overall, 72 subjects invest their endowment in four risky assets. Each com-bination 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 asked to elect their "expert" based on responses to a prior decision task. Using the random price mecha-nism reveals that 64% of the subjects prefer their own portfolio over the average group portfolio or the expert’s port-folio. 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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2001/wp-cesifo-2001-12/cesifo_wp621.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 621.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_621
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