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Overconfidence, risk aversion and individual financial decisions in experimental asset markets

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  • Julija Michailova
  • Alminas Mačiulis
  • Manuela Tvaronavičienė

Abstract

Prior experiments revealed that investors’ overconfidence can result in excessive trade and negative wealth effects. However, in most of these studies, informational asymmetries were part of the experimental design, and therefore no clear conclusion on whether the obtained results were driven by overconfidence or informational asymmetries could be made. The article addresses this issue by analysing individual financial decisions based on the study of Michailova and Schmidt, who ran an asset markets experiment with no informational asymmetries. Additionally, the study controls for differences in individual risk aversion. The data revealed that, in this setting, individual trading activity and performance were influenced by overconfidence only for female participants. Mistakes in future price forecasting, which were negatively correlated with overconfidence, partially accounted for this result. Risk aversion was uncorrelated with overconfidence and had no influence on experimental outcomes.

Suggested Citation

  • Julija Michailova & Alminas Mačiulis & Manuela Tvaronavičienė, 2017. "Overconfidence, risk aversion and individual financial decisions in experimental asset markets," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 30(1), pages 1119-1131, January.
    • Handle: RePEc:taf:reroxx:v:30:y:2017:i:1:p:1119-1131
    DOI: 10.1080/1331677X.2017.1311234
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    Cited by:

    1. Nicola Capolupo & Zuzana Virglerova & Angelo Rosa & Dario Natale Palmucci, 2024. "The relationship between biases and entrepreneurial Decision-Making. Evidence from Italian and Czech SMEs," International Entrepreneurship and Management Journal, Springer, vol. 20(4), pages 3323-3348, December.
    2. Yang, Junhua & Li, Ying & Sui, Anna, 2023. "From black gold to green: Analyzing the consequences of oil price volatility on oil industry finances and carbon footprint," Resources Policy, Elsevier, vol. 83(C).
    3. Yonatan Shertzer & Yael Brender-Ilan, 2023. "Why Do Leaders Escalate Their Commitment to a Failed Course of Action? A Moderated-Mediation Personality Traits Model," SAGE Open, , vol. 13(1), pages 21582440231, February.
    4. Gerardo Sabater-Grande & Noemí Herranz-Zarzoso & Aurora García-Gallego, 2024. "The role of monetary incentives and feedback on how well students calibrate their academic performance," Working Papers 2024/01, Economics Department, Universitat Jaume I, Castellón (Spain).

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