Overweighting Private Information: Three Measures, One Bias?

Gerlinde Fellner-Röhling () and Sebastian Krügel ()
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Sebastian Krügel: Max Planck Institute of Economics, IMPRS "Uncertainty", Jena

No 2010-058, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: Overweighting private information is often used to explain various detrimental decisions. In behavioral economics and finance, it is usually modeled as a direct consequence of misperceiving signal reliability. This bias is typically dubbed overconfidence and linked to the judgment literature in psychology. Empirical tests of the models often fail to find evidence for the predicted effects of overconfidence. These studies assume, however, that a specific type of overconfidence, i.e., "miscalibration," captures the underlying trait. We challenge this assumption and borrow the psychological methodology of single-cue probability learning to obtain a direct measure for overweighting private information. We find that overweighting private information and measures of "miscalibration" are unrelated, indicating that different kinds of misperceptions are at work. Thus, in order to test the theoretical predictions of the overconfidence literature in economics and finance, one cannot rely on the well-established "miscalibration" bias. We find no gender differences in overconfidence for our measures except for one, where women are more overconfident than men.

Keywords: overconfidence; miscalibration; signal perception; cognitive bias (search for similar items in EconPapers)
JEL-codes: C91 D03 D83 (search for similar items in EconPapers)
Date: 2010-08-25
New Economics Papers: this item is included in nep-cbe, nep-cta and nep-neu
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2010-058

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