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Investor Overconfidence in Experimental Asset Markets across Market States

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  • Chris Meier
  • Lurion De Mello

Abstract

This study explores how individual overconfidence adjusts after receiving extreme feedback that either supports or contradicts previous decision-making when buying or selling stocks. We find that highly contradicting feedback causes overconfidence to vanish as confidence declines sharply while supportive signals cause overconfidence to increase. Further evidence suggests that strong feedback impulses are associated with higher investor disagreement, supporting prior hypotheses that investors interpret such impulses differently. We also find that methodologies that measure overconfidence in prediction tasks systematically overstate confidence scores as respondents tend to fail to internalize stated confidence intervals appropriately.

Suggested Citation

  • Chris Meier & Lurion De Mello, 2020. "Investor Overconfidence in Experimental Asset Markets across Market States," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 21(4), pages 369-384, October.
    • Handle: RePEc:taf:hbhfxx:v:21:y:2020:i:4:p:369-384
    DOI: 10.1080/15427560.2019.1692845
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    Cited by:

    1. Esra Alp Coşkun & Hakan Kahyaoglu & Chi Keung Marco Lau, 2023. "Which return regime induces overconfidence behavior? Artificial intelligence and a nonlinear approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-34, December.
    2. Steven Shead & Robert B Durand & Stephanie Thomas, 2021. "Predicting price intervals under exogenously induced stress," PLOS ONE, Public Library of Science, vol. 16(9), pages 1-15, September.

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