Biological Characteristics Modulating Investor Overconfidence

Abstract

Applying a standard questionnaire (Lichtenstein and Fischhoff 1977) to a sample of 44 professional investors, we sought for explicit correlations between selected biological characteristics of the investors and the cognitive bias known as overconfidence. We found that both male and female investors showed overconfidence above the subjective probability of 0.7 and underconfidence below this threshold. But the sexes seemed to behave differently when they were totally uncertain of their answers. Experienced and inexperienced investors were overconfident whenever they were 70 percent (or above) confident of their answers. Despite that, experienced investors were relatively more calibrated. Of those who were highly uncertain of their answers, the inexperienced showed less confidence. Moreover, a logistic regression analysis showed that male subjects, fathers, right-handers, and subjects with a university degree and less than five years of experience in stock markets were more prone to the overconfidence effect.

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