OVERCONFIDENCE IN JUDGEMENTS: THE EVIDENCE, THE IMPLICATIONS AND THE LIMITATIONS

Shih‐Wei Wu · JOHNNIE E. V. JOHNSON · Ming‐Chien Sung

18 citations0/0 files storedThe Journal of Prediction Markets

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Decision-Making and Behavioral Economics Financial Markets and Investment Strategies Sports Analytics and Performance

Abstract

This paper examines the degree to which individuals tend to be overconfident in their judgements and identifies the implications for those trading in prediction markets. The findings from laboratory-based psychological studies of overconfidence are compared and contrasted with those from financial market studies. The broad conclusion from this literature survey is that overconfidence is a widespread phenomenon which is influenced by a number of factors, such as, the difficulty of the judgement task, the amount and nature of outcome feedback, and the gender and culture of the decision maker. It is also clear that there are a number of limitations of the existing research and a suggested methodology for further research in this area is examined.

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References

1993Common risk factors in the returns on stocks and bonds 1975Judgment under Uncertainty: Heuristics and Biases 1998Investor Psychology and Security Market Under‐ and Overreactions 2001Boys will be Boys: Gender, Overconfidence, and Common Stock Investment 2000Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors 1998Volume, Volatility, Price, and Profit When All Traders Are Above Average 1992The weighing of evidence and the determinants of confidence 2003From Efficient Markets Theory to Behavioral Finance

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