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Overconfidence and the Political and Financial Behavior of a Representative Sample

Steffen Ahrens, Ciril Bosch-Rosa and Bernhard Kassner
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Steffen Ahrens: FU Berlin
Ciril Bosch-Rosa: TU Berlin

No 283, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We study the relationship between overconfidence and the political and financial behavior of a nationally representative sample. To do so, we introduce a new method of eliciting overconfidence that is simple to understand, quick to implement, and captures respondents\' excess confidence in their own judgment. Our results show that, in line with theoretical predictions, an excessive degree of confidence in one\'s judgment is correlated with lower portfolio diversification, larger stock price forecasting errors, and more extreme political views. Additionally, we find that overconfidence is correlated with voting absenteeism. These results appear to validate our method and show how overconfidence is a bias that permeates several aspects of peoples\' life.

Keywords: overconfidence; soep; survey (search for similar items in EconPapers)
JEL-codes: C83 D91 G41 (search for similar items in EconPapers)
Date: 2021-05-26
New Economics Papers: this item is included in nep-cbe, nep-cfn and nep-cwa
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