Download or read book Overconfidence Review of its Economic Implications written by Stefan Dietrich and published by GRIN Verlag. This book was released on 2018-05-02 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2017 in the subject Psychology - Work, Business, Organisation, grade: 1,00, University of Mannheim, course: Behavioral Economics Seminar, language: English, abstract: Overconfidence is believed to be one of the most widespread behavioral biases. Empirical evidence supports this argument in many instances and differentiates between various forms and manifestations. Whether this is in sum economically negative for the individual or society remains unanswered in the literature. I analyze the economic implications of overconfidence based on recent research and connects them to reasons and viable solutions to overcome this bias in certain areas of the economic realm: consumer choices, market entry and decision making of firms, financial markets and bubbles.

Download or read book Impact of Overoptimism and Overconfidence on Economic Behavior written by Andreas Müller and published by diplom.de. This book was released on 2007-11-01 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Introduction: Economic theory normally focuses on rational agents optimizing individual utility. Since the second half of the 20th century, this viewpoint has been enriched by findings from the field of psychology. A new trait of research was created called behavioral economics . It takes into account subjective characteristics such as asymmetric preference and judgment, or limits of rational processing, willpower, and greed. This paper aims to give an overview of two related human traits that have attracted particularly wide interest, namely overconfidence and overoptimism. The two are closely related to each other, and often used synonymously. Broadly speaking, overconfidence results in underestimation of future risks, e.g. the riskiness of future cash flows, whilst overoptimism leads to an overestimation of future positive outcomes, e.g. the future returns of a company. Besides, the paper wants to deduct suggestions for further research, by systematically identifying uncovered topics in existing literature. Usually Alpert and Raiffa are credited with the first discovery of overconfidence. However, the most influential study is probably Russo and Schoemaker. It was published in the Sloan Management Review and communicated the topic to a broader audience for the first time. In particular, it revealed that assumingly rational managers were prone to overconfidence, too. This challenged traditional management doctrines and generated interest in a better understanding of the topic and further research. To exemplify overconfidence, Russo and Schoemaker asked managers to give numerical intervals for ten general-knowledge questions, such that nine out of the ten answers would be correct. On average participants included the correct value within their interval only 5 out of 10 times, i.e. they underestimated potential errors in their estimations. Svenson is probably the most influential source regarding overoptimism. He made the subject intuitively understandable and established a standard measurement method that could be easily used for subsequent research. To give an example of overoptimism: Svenson asked students to compare their driving skills to those of their classmates. Roughly 80% believed they belonged to the top 50%, i.e. they overestimated their abilities. This paper also provides a closer look at the empirical methods normally applied in field studies. Although the phenomena are intuitively understandable, empirical research [...]

Download or read book Managerial Overconfidence Different Thinking through Different Education written by Maximilian Margolin and published by Anchor Academic Publishing (aap_verlag). This book was released on 2014-02-01 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt: In literature, overconfidence has been blamed for economic bubbles and crises as well as for international conflicts and wars. While education has already been shown to impact one’s level of overconfidence previous research focused on the length and profoundness of education. This study, in contrast, examines the connection between overconfidence and the field in which a person has been educated. The issues covered are therefore how education and mind set are related, why a differentiation between “quantitative” and “qualitative” education makes sense in this context, and how different mind-sets influence an individual’s proneness to overconfidence. Drawing on the dual process concept of reasoning from psychology it is argued that the focus of one’s education may have an influence on individual levels of overconfidence through distinct ways of reasoning that are acquired and practiced during higher education. As support for this theory, data on the overconfidence of CEOs of the largest German companies is used and experiments for future research on this topic are suggested.

Download or read book A Behavioral Approach to Asset Pricing written by Hersh Shefrin and published by Elsevier. This book was released on 2008-05-19 with total page 636 pages. Available in PDF, EPUB and Kindle. Book excerpt: Behavioral finance is the study of how psychology affects financial decision making and financial markets. It is increasingly becoming the common way of understanding investor behavior and stock market activity. Incorporating the latest research and theory, Shefrin offers both a strong theory and efficient empirical tools that address derivatives, fixed income securities, mean-variance efficient portfolios, and the market portfolio. The book provides a series of examples to illustrate the theory. The second edition continues the tradition of the first edition by being the one and only book to focus completely on how behavioral finance principles affect asset pricing, now with its theory deepened and enriched by a plethora of research since the first edition

Download or read book Overconfidence and its Influence on Risk written by Christopher Knoll and published by GRIN Verlag. This book was released on 2021-11-18 with total page 11 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2016 in the subject Psychology - Industrial and organizational psychology, grade: 1.7, University of Passau, course: Behavioral Economics and the Seven Sins, language: English, abstract: In a study conducted in 1980 drivers were surveyed about their driving skills in comparison to a group of others. In her experiment, Svenson analyses how people judge their own skill and risk taking engaged in risky activities. The result of the experiment shows that 88% of US subjects and 77% of Swedish subjects judged their skills above the average skill in their subject group. Preston and Harris (1965) indicate even more bias from subjects. They compared 50 drivers which were involved in accidents, besides being hospitalized, they still showed means stating that they judged themselves more skillful than the average driver. The central element of the economic paradigm is homo economicus. Homo economicus is described as an individual with rational actions. The homo economicus faces a situation with limited resources to satisfy his needs. Therefore, the homo economicus uses rational decisions to optimize his outcome and gain the highest utility possible. Behavioral economic research on the other hand distinguishes a deviance of human behavior from the rational homo economicus as can be observed in Svenson’s study. The behavior is called overconfidence, which is a widely discussed phenomenon in behavioral economic literature. Psychological studies show that most people are overconfident about their own relative abilities, tend to underestimate their competition and make unreasonably optimistic predictions about their futures. In the following, the characteristics of the behavioral model of overconfidence will be further discussed. Subsequently, the influence of overconfidence on risk taking will be evaluated.

Download or read book A Critical Analysis of Overconfidence as an Explanation for the High Rate of Business Entry Failure written by Thorben Wölk and published by . This book was released on 2013 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Studienarbeit aus dem Jahr 2013 im Fachbereich BWL - Unternehmensfuhrung, Management, Organisation, einseitig bedruckt, Note: 1,0, Christian-Albrechts-Universitat Kiel (Applied economics of the firm), Veranstaltung: Risk and Entrepreneurship, Sprache: Deutsch, Abstract: Friday, the 19th of October, 2012, the German newspaper "Handelsblatt" (Storbeck, 2012) titled: "Rethinking Economy." 15 young economists were introduced to be the new hope for economic science. One of them was Ulrike Malmendier whose first economic researches deal with managerial hubris. Introducing her is proofing the importance of a new economic domain called "behavioural economics." As a behavioural economist Malmendier criticises the "homo-economicus"-model and the idea of people acting entirely rational. In fact, people constantly display irrational behaviour that results out of cognitive biases (that distort their perception) and also results out of simple, but biased decision rules (heuristics) that the human mind implies. One of those cognitive biases is that people seem to be unreasonable overconfident. The study of overconfidence is originated in the psychological literature. Because of it's great impact on the behaviour of economic actors, it recently influences economic and finance literature (Benoit, Dubra, 2011) and significantly shapes the research activity in behavioural economics. The task of this essay is to critically analyse the role of overconfidence in a special economic domain: business entry decisions. The text is structured as follows: The first section shortly deals with the domain of business entry failures. In the subsequent chapters, overconfidence is introduced as a possible explanation. It is to explain what overconfidence is and how it arises. The text then reviews the paper of Camerer and Lovallo (1999) and critically analyses overconfidence as an explanation for excess entry and high rates of business failure. At last, it will take a further look at the future resea"

Download or read book Managerial Overconfidence and Education Insights from Dual Process Theory written by Maximilian Margolin and published by GRIN Verlag. This book was released on 2013-02-07 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2012 in the subject Business economics - Miscellaneous, grade: 1,3, University of Mannheim, course: Business economics, language: English, abstract: Based on data from German DAX-CEOs in this thesis it is argued, that in different fields of education individuals acquire different mind-sets which influence their proneness to overconfidence. Using the framework of dual process reasoning it is proposed that education in quantitative fields, such as mathematics or physics, hampers overconfidence while individuals educated in qualitative fields, such as law or the humanities, become more prone to overconfidence.

Download or read book Attention and Performance Viii written by R. S. Nickerson and published by Psychology Press. This book was released on 2014-01-14 with total page 849 pages. Available in PDF, EPUB and Kindle. Book excerpt: First published in 1980. This is a volume of the proceedings of the Eighth International Symposium on Attention and Performance held in Princeton, New Jersey, USA, from August 20th to 25th 1978.

Download or read book Three Essays on the Effect of Overconfidence on Economic Decision Making written by Klajdi Bregu and published by . This book was released on 2017 with total page 344 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation uses experimental evidence to explore the effects of overconfidence on economic decision making. In Chapter 1 I provide experimental evidence of the effects of alcohol on overconfidence and several other important tasks. I also explore the relationship between overconfidence and the behavior in the other tasks. The data from this experiment show that an alcohol level of 0.08 does not have a systemic effect on behavior and more importantly it does not affect one's level of overconfidence. I also show that overconfidence is not significantly correlated with risk preferences, math, strategic behavior, anchoring, altruism, and food choices. In Chapter 2 I use feedback to establish a causal link between overconfidence and trading behavior. Feedback is used to eliminate the possibility for subjects to be overconfident about the accuracy of their signals. The data from this experiment show that overconfidence affects trading volume and profits, but when feedback is provided trading volume is no longer affected by overconfidence. This shows that there exists a causal relationship between overconfidence and trading volume. Lastly, Chapter 3 explores the role of overconfidence on insurance purchasing decisions. I show that overconfident people buy significantly less insurance. The stability of overconfidence using different measures and the relationship between overconfidence and risk is also explored. I find that different tasks do not elicit the same level of overconfidence and that risk preferences and overconfidence are not statistically significantly correlated.

Download or read book Overconfidence in Psychology and Finance An Interdisciplinary Literature Review written by Dorota Skala and published by . This book was released on 2008 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on one of the most meaningful concepts in modern behavioural finance, the overconfidence phenomenon. Overconfidence is presented as a well-developed psychological theory, with main facets comprising miscalibration, better-than-average effect, illusion of control and unrealistic optimism. The primary applications of overconfidence in contemporary finance are analysed, from the perspective of financial markets and corporate behaviour. Experimental studies, formal models and analyses of market data demonstrate that overconfidence at least partially solves some financial market puzzles that cannot be accounted for by standard economic theory. Overconfidence in the corporate context may affect not only a company's internal financing structure, but also its interactions with other market participants through merger and acquisition activity.

Download or read book The Self in Social Judgment written by Mark D. Alicke and published by Psychology Press. This book was released on 2013-05-13 with total page 361 pages. Available in PDF, EPUB and Kindle. Book excerpt: The volume begins with a historical overview of the self in social judgment and outlines the major issues. Subsequent chapters, all written by leading experts in their respective areas, identify and elaborate four major themes regarding the self in social judgment: · the role of the self as an information source for evaluating others, or what has been called 'social projection' · the assumption of personal superiority as reflected in the pervasive tendency for people to view their characteristics more favorably than those of others · the role of the self as a comparison standard from or toward which other people's behaviors and attributes are assimilated or contrasted · the relative weight people place on the individual and collective selves in defining their attributes and comparing them to those of other people

Download or read book Behavioral Corporate Finance written by Hersh Shefrin and published by College Ie Overruns. This book was released on 2017-04-16 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Perspectives on Innovation written by Franco Malerba and published by Cambridge University Press. This book was released on 2007-03-29 with total page 465 pages. Available in PDF, EPUB and Kindle. Book excerpt: Case studies, empirical models, appreciative analyses and formal theories abound.

Download or read book The Wiley Blackwell Handbook of Judgment and Decision Making 2 Volume Set written by Gideon Keren and published by John Wiley & Sons. This book was released on 2016-02-16 with total page 1056 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive, up-to-date examination of the most important theory, concepts, methodological approaches, and applications in the burgeoning field of judgment and decision making (JDM) Emphasizes the growth of JDM applications with chapters devoted to medical decision making, decision making and the law, consumer behavior, and more Addresses controversial topics from multiple perspectives – such as choice from description versus choice from experience – and contrasts between empirical methodologies employed in behavioral economics and psychology Brings together a multi-disciplinary group of contributors from across the social sciences, including psychology, economics, marketing, finance, public policy, sociology, and philosophy 2 Volumes

Download or read book Behavioral Finance and Wealth Management written by Michael M. Pompian and published by John Wiley & Sons. This book was released on 2011-01-31 with total page 393 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Pompian is handing you the magic book, the one that reveals your behavioral flaws and shows you how to avoid them. The tricks to success are here. Read and do not stop until you are one of very few magicians." —Arnold S. Wood, President and Chief Executive Officer, Martingale Asset Management Fear and greed drive markets, as well as good and bad investment decision-making. In Behavioral Finance and Wealth Management, financial expert Michael Pompian shows you, whether you're an investor or a financial advisor, how to make better investment decisions by employing behavioral finance research. Pompian takes a practical approach to the science of behavioral finance and puts it to use in the real world. He reveals 20 of the most prominent individual investor biases and helps you properly modify your asset allocation decisions based on the latest research on behavioral anomalies of individual investors.

Download or read book Economic Analysis of Overconfidence and Reciprocity written by Hanke Wickhorst and published by . This book was released on 2011 with total page 220 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Capital and Credit written by Michio Morishima and published by Cambridge University Press. This book was released on 1994-03-25 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contemporary general equilibrium theory is characteristically short-run, separated from monetary aspects of the economy, and as such does not deal with long-run problems such as capital accumulation, innovation, and the historical movement of the economy. These phenomena are discussed by growth theory, which assumes a given or shifting production function, and in turn cannot therefore deal with the fundamental problem of growth, namely how the production function is derived. Thus traditional theories have a common weakness in that they divorce real economic growth from the activities of the financial sector. This book provides a much-needed synthesis of growth theory and monetary theory. Professor Morishima draws on the work of Schumpeter, Keynes and the pre-war neoclassical economists to formulate a capital-theoretic general equilibrium theory.