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DO SELF-THEORIES EXPLAIN OVERCONFIDENCE AND FINANCIAL RISK TAKING? A field experiment

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Listed:
  • Bertrand Koebel
  • André Schmitt
  • Sandrine Spaeter

Abstract

How people develop beliefs about themselves (self-theories) plays an important role on motivation and achievement as shown by Carol Dweck’s life-long research. In this paper, we conduct a field experiment to investigate whether self-theories impact overconfidence and risk taking. Self-theories deal with how an individual perceives some of her attributes such as intelligence, personality or moral character. In this paper, we are interested by how people perceive their mindset (fixed or growth). All decisions taken by young Vietnamese executives were incentivized to identify their degree of overconfidence and risk taking. As in previous studies, we find that subjects exhibit significant overconfidence. We also find that fixed mindset subjects are less over-confident than growth mindset persons, the latter earning the highest incomes in our experiment. Finally, we find correlation between risk taking and overconfidence. However, contrary to the existing results in the literature on behavioral finance, in our experiment, the higher the degree of overconfidence, the lower the investment in risky lotteries. Gender does not seem to have any impact on neither overconfidence nor risk-taking behavior.

Suggested Citation

  • Bertrand Koebel & André Schmitt & Sandrine Spaeter, 2015. "DO SELF-THEORIES EXPLAIN OVERCONFIDENCE AND FINANCIAL RISK TAKING? A field experiment," Working Papers of BETA 2015-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2015-04
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    Keywords

    overconfidence; experiment; self-theories; mindset; risk-taking.;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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