Illusion of Expertise in Portfolio Decisions - An Experimental Approach -

Gerlinde Fellner (), Werner Güth () and Boris Maciejovsky

Discussion Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: Overall, 72 subjects invest their endowment in four risky assets. Each combination 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 ask to elect their "expert" based on responses to a prior decision task. Using the random price machanism reveals that 64% of the subjects prefer their own portfolio over the average group portfolio or the expert's portfolio. Illusion of expertise is shown to be stable individually, over alternatives, and for both eliciting methods, willingness to pay and to accept.

Keywords: Investment decisions; Portfolio selection; Overconfidence; Unrealistic optimism; Illusion of control; Endowment effect (search for similar items in EconPapers)
JEL-codes: C91 D80 D84 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: Written 2001-11
Note: Financial support by the Deutsche Forschungsgemeinschaft (SFB-373, C5) is gratefully acknowledged. We are indebted to Silke Meiner, Sylvia Schikora, and Volker Zieman for their research assistance. Valuable comments by Richard Thaler, Martin Weber and by participants at the GEW-meeting in Magdeburg are also acknowledged.
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Related works:
Journal Article: Illusion of expertise in portfolio decisions: an experimental approach (2004)
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