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Overconfidence and the Political and Financial Behavior of a Representative Sample

Author

Listed:
  • Ahrens, Steffen

    (FU Berlin)

  • Bosch-Rosa, Ciril

    (TU Berlin)

  • Kassner, Bernhard

    (LMU Munich)

Abstract

We study the relationship between overconfidence and the political and financial behavior of a nationally representative sample. To do so, we introduce a new method of eliciting overconfidence that is simple to understand, quick to implement, and captures respondents\' excess confidence in their own judgment. Our results show that, in line with theoretical predictions, an excessive degree of confidence in one\'s judgment is correlated with lower portfolio diversification, larger stock price forecasting errors, and more extreme political views. Additionally, we find that overconfidence is correlated with voting absenteeism. These results appear to validate our method and show how overconfidence is a bias that permeates several aspects of peoples\' life.

Suggested Citation

  • Ahrens, Steffen & Bosch-Rosa, Ciril & Kassner, Bernhard, 2021. "Overconfidence and the Political and Financial Behavior of a Representative Sample," Rationality and Competition Discussion Paper Series 283, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:283
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    More about this item

    Keywords

    overconfidence; soep; survey;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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