Overconfident investors and probability misjudgments

Doron Kliger and Ori Levy

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2010, vol. 39, issue 1, 24-29

Abstract: This paper explores systematic distortions of subjective probabilities by overconfident investors. In agreement with many non-expected utility theories, our devised setup acknowledges nonlinear weighting of physical probabilities by both rational and overconfident investors. Overconfidence - assumed to be higher after a history of gains and lower after a history of losses - changes these probability transformations. Using US asset price data, overconfident investors are found to be more optimistic than rational investors about future prospects.

Keywords: Market; data; Overconfidence; Probability; weighting; functions (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:39:y:2010:i:1:p:24-29

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