Overconfident investors and probability misjudgments
This paper explores systematic distortions of subjective probabilities by overconfident investors. In agreement with many non-expected utility theories, our devised setup acknowledges nonlinear weighting of physical probabilities by both rational and overconfident investors. Overconfidence - assumed to be higher after a history of gains and lower after a history of losses - changes these probability transformations. Using US asset price data, overconfident investors are found to be more optimistic than rational investors about future prospects.
Year of publication: |
2010
|
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Authors: | Kliger, Doron ; Levy, Ori |
Published in: |
Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics). - Elsevier, ISSN 2214-8043. - Vol. 39.2010, 1, p. 24-29
|
Publisher: |
Elsevier |
Keywords: | Market data Overconfidence Probability weighting functions |
Saved in:
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