Construction and validation of an overconfidence scale in investment decisions

Daniel Fonseca Costa (), Cláudia Cardoso Soares (), Bruno César Melo Moreira () and Adriano Olímpio Tonelli ()
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Daniel Fonseca Costa: Federal Institute of Minas Gerais
Cláudia Cardoso Soares: Federal Institute of Minas Gerais
Bruno César Melo Moreira: Federal Institute of Minas Gerais
Adriano Olímpio Tonelli: Federal Institute of Minas Gerais

Future Business Journal, 2025, vol. 11, issue 1, 1-15

Abstract: Abstract Existing studies that directly measure the three types of overconfidence—overprecision, overplacement, and overestimation—are largely exploratory, highlighting the need for further confirmatory research to establish robust overconfidence measures. Moreover, there is no comprehensive instrument for analyzing these types of overconfidence in the context of investment decisions. To address these gaps, the present study aims to develop and validate a scale for assessing overconfidence in investment decisions, considering its three forms. The research involved 380 Brazilian participants and employed confirmatory factor analysis and standard multivariate validation methods. The scale, based on a theoretical framework of the three types of overconfidence, consisted of 30 questions (10 for each type) designed to measure the degree of overconfidence in investment decision-making. The scale demonstrated acceptable factor loadings and internal and external validity, indicating its suitability for evaluating overconfidence in investment decisions. The standardized factor loadings showed p values

Keywords: Overconfidence; Investments; Overplacement; Overprecision; Overestimation; Behavioral finance (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1186/s43093-024-00419-0

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