The 'Write' Size of Trading Behavior : Overconfidence, Prices, and Bubbles in Experimental Asset Markets

This study analyzes the role that overconfidence plays in investor trading behavior. Using a unique measure of confidence (signature size) with an experimental economics approach, we find that those who are more confident bid significantly higher for assets in simulated trading exercises. This is consistent with previous research that overconfident individuals put too much weight on private signals and/or valuations. We further find that markets with a higher percentage of overconfident individuals experience more mispricing and more overpricing