Clarifying managerial biases using a probabilistic framework

Polina Ellina, Briance Mascarenhas and Panayiotis Theodossiou

Journal of Behavioral and Experimental Finance, 2020, vol. 27, issue C

Abstract: A unifying probabilistic framework is developed to analyze and compare the impact of the psychological biases of overconfidence and underconfidence on managerial perceptions about the expected value, overall risk, downside risk, value-at-risk and expected shortfall of decision-making economic variables. The results depict that overconfident managers overestimate their expected values and underestimate downside risk, VaR and ES of decision-making variables. Underconfident managers, on the other hand, underestimate their expected values and overestimate downside risk, value-at-risk, and expected shortfall.

Keywords: Downside risk; Expected shortfall; Probability miscalibration; Psychological biases; Skewed normal distribution; Value-at-risk (search for similar items in EconPapers)
JEL-codes: C46 G4 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:27:y:2020:i:c:s2214635020300459

DOI: 10.1016/j.jbef.2020.100333

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