Overconfidence, Risk Aversion and Individual Financial Decisions in Experimental Asset Markets

Julija Michailova ()

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate the influence of overconfidence and risk aversion on individual financial decision making in the experimental asset markets of the Smith, Suchanek and Williams (1988) type, with no informational asymmetries. Subjects, based on their pre-experimental overconfidence scores, were assigned to the two types of markets: least overconfident subjects formed five “rational” markets and most overconfident subjects formed five “overconfident” markets. The asset market experiment was followed by post hoc risk aversion measurement. Our results revealed that in the suggested setting, performance and trading activity were overconfidence dependent only for female participants. Mistakes in price forecasting, that are negatively correlated with overconfidence, could partially account for the increase in trading activity and losses. In the decreased sample differences in individual outcomes were overconfidence and not risk aversion driven.

Keywords: overconfidence; miscalibration; overprecision; risk aversion; financial decisions; economic experiments (search for similar items in EconPapers)
JEL-codes: C90 C91 D81 G11 (search for similar items in EconPapers)
Date: 2010, Revised 2014-01
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/53114/1/MPRA_paper_53114.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/63821/1/MPRA_paper_63821.pdf revised version (application/pdf)

Related works:
Working Paper: Overconfidence, risk aversion and (economic) behavior of individual traders in experimental asset markets (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:53114

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