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Clarifying managerial biases using a probabilistic framework

Author

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  • Ellina, Polina
  • Mascarenhas, Briance
  • Theodossiou, Panayiotis

Abstract

A unifying probabilistic framework is developed to analyze and compare the impact of the psychological biases of overconfidence and underconfidence on managerial perceptions about the expected value, overall risk, downside risk, value-at-risk and expected shortfall of decision-making economic variables. The results depict that overconfident managers overestimate their expected values and underestimate downside risk, VaR and ES of decision-making variables. Underconfident managers, on the other hand, underestimate their expected values and overestimate downside risk, value-at-risk, and expected shortfall.

Suggested Citation

  • Ellina, Polina & Mascarenhas, Briance & Theodossiou, Panayiotis, 2020. "Clarifying managerial biases using a probabilistic framework," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
    • Handle: RePEc:eee:beexfi:v:27:y:2020:i:c:s2214635020300459
    DOI: 10.1016/j.jbef.2020.100333
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    References listed on IDEAS

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    Cited by:

    1. Kumar, Satish & Rao, Sandeep & Goyal, Kirti & Goyal, Nisha, 2022. "Journal of Behavioral and Experimental Finance: A bibliometric overview," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).
    2. Rachel Shields & Samer Ajour El Zein & Neus Vila Brunet, 2021. "An Analysis on the NASDAQ’s Potential for Sustainable Investment Practices during the Financial Shock from COVID-19," Sustainability, MDPI, vol. 13(7), pages 1-20, March.

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    More about this item

    Keywords

    Downside risk; Expected shortfall; Probability miscalibration; Psychological biases; Skewed normal distribution; Value-at-risk;
    All these keywords.

    JEL classification:

    • G4 - Financial Economics - - Behavioral Finance
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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