Outcome Bias in Financial Decision Making

We experimentally investigate the Outcome Bias in financial decision making. In three treatments, we vary the cognitive challenge investors have to overcome to separate skill from luck. Investors show clear tendencies towards the Outcome Bias in all treatments. The Outcome Bias is stronger, by a third, in the two treatments in which high outcomes correspond to worse investment choices. This result is puzzling, since investment quality can be identified with certainty in the second treatment, while Bayesian probability updating is required in the third treatment. Results are not a product of chance, as randomly simulated data reveals