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Overconfidence of Professionals and Lay Men: Individual Differences Within and Between Tasks?

  • Glaser, Markus


    (Sonderforschungsbereich 504)

  • Langer, Thomas


    (Westfälischen Wilhelms-Universität Münster Lehrstuhl für BWL, insbesondere Finanzierung)

  • Weber, Martin


    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Overconfidence can manifest itself in various forms. For example, people think that their knowledge is more precise than it really is (miscalibration) and they believe that their abilities are above average (better than average effect). The questions whether judgment biases are related or whether stable individual differences in the degree of overconfidence exist, have long been unexplored. In this paper, we present two studies that analyze whether professional traders or investment bankers who work for international banks are prone to judgment biases to the same degree as a population of lay men. We examine whether there are robust individual differences in the degree of overconfidence within various tasks. Furthermore, we analyze whether the degree of judgment biases is correlated across tasks. Based on the answers of 123 professionals, we find that expert judgment is biased. In most tasks, their degrees of overconfidence are significantly higher than the respective scores of a student control group. In line with the literature, we find stable individual differences within tasks (e.g. in the degree of miscalibration). However, we find that correlations across distinct tasks are sometimes insignificant or even negative. We conclude that some manifestations of overconfidence, that are often argued to be related, are actually unrelated.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 05-25.

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Length: 40 pages
Date of creation: 27 Apr 2005
Date of revision:
Handle: RePEc:xrs:sfbmaa:05-25
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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