IDEAS home Printed from https://ideas.repec.org/a/vrs/ijomae/v53y2017i3p48-66n4.html
   My bibliography  Save this article

Anchoring and Overconfidence: The Influence of Culture and Cognitive Abilities

Author

Listed:
  • Czerwonka Monika

    (Collegium of Management and Finance, Warsaw School of Economics, Poland)

Abstract

Anchoring and overconfidence are some of the best-known biases in psychology and behavioral finance literature. While a number of studies have investigated the evidence of these biases and explored the motives and human factors that contribute to the one’s susceptibility to the effects, little is known about the cultural factors behind these heuristic biases. This paper aims to fill the research gap and shows the differences in proneness to the anchoring effect and overconfidence in two samples of students from Poland and India. The purpose of the study is twofold: to analyze susceptibility to behavioral effects relative to cultural background; and to consider the subjects’ cognitive abilities as a potential factor in their exposure to behavioral biases and confirm that subjects with higher cognitive skills, measured by the cognitive reflection test (CRT) display less susceptibility to the above heuristic biases.

Suggested Citation

  • Czerwonka Monika, 2017. "Anchoring and Overconfidence: The Influence of Culture and Cognitive Abilities," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 53(3), pages 48-66, September.
    • Handle: RePEc:vrs:ijomae:v:53:y:2017:i:3:p:48-66:n:4
    DOI: 10.1515/ijme-2017-0018
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/ijme-2017-0018
    Download Restriction: no
    File URL: https://libkey.io/10.1515/ijme-2017-0018?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kai Duttle & Keigo Inukai, 2015. "Complexity Aversion: Influences of Cognitive Abilities, Culture and System of Thought," Economics Bulletin, AccessEcon, vol. 35(2), pages 846-855.
    2. Zheng, Xiaolan & El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y., 2012. "National culture and corporate debt maturity," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 468-488.
    3. Yates, J. Frank & Lee, Ju-Whei & Bush, Julie G G., 1997. "General Knowledge Overconfidence: Cross-National Variations, Response Style, and "Reality"," Organizational Behavior and Human Decision Processes, Elsevier, vol. 70(2), pages 87-94, May.
    4. Klayman, Joshua & Soll, Jack B. & Gonzalez-Vallejo, Claudia & Barlas, Sema, 1999. "Overconfidence: It Depends on How, What, and Whom You Ask, , , , , , , , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 79(3), pages 216-247, September.
    5. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2009. "Cognitive abilities and behavioral biases," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 147-152, October.
    6. J B Heaton, 2002. "Managerial Optimism and Corporate Finance," Financial Management, Financial Management Association, vol. 31(2), Summer.
    7. Acker, Daniella & Duck, Nigel W., 2008. "Cross-cultural overconfidence and biased self-attribution," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1815-1824, October.
    8. Hoppe, Eva I. & Kusterer, David J., 2011. "Behavioral biases and cognitive reflection," Economics Letters, Elsevier, vol. 110(2), pages 97-100, February.
    9. Aggarwal, Raj & Goodell, John W., 2014. "National cultural dimensions in finance and accounting scholarship: An important gap in the literatures?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 1(C), pages 1-12.
    10. Antonczyk, Ron Christian & Salzmann, Astrid Juliane, 2014. "Overconfidence and optimism: The effect of national culture on capital structure," Research in International Business and Finance, Elsevier, vol. 31(C), pages 132-151.
    11. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "Does Culture Affect Economic Outcomes?," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 23-48, Spring.
    12. Chuck C Y Kwok & Solomon Tadesse, 2006. "National culture and financial systems," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(2), pages 227-247, March.
    13. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    14. Hackbarth, Dirk, 2008. "Managerial Traits and Capital Structure Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(4), pages 843-881, December.
    15. Larrick, Richard P. & Burson, Katherine A. & Soll, Jack B., 2007. "Social comparison and confidence: When thinking you're better than average predicts overconfidence (and when it does not)," Organizational Behavior and Human Decision Processes, Elsevier, vol. 102(1), pages 76-94, January.
    16. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
    17. Kent D. Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 2001. "Overconfidence, Arbitrage, and Equilibrium Asset Pricing," Journal of Finance, American Finance Association, vol. 56(3), pages 921-965, June.
    18. Yates, J. Frank & Lee, Ju-Whei & Shinotsuka, Hiromi, 1996. "Beliefs about Overconfidence, Including Its Cross-National Variation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 65(2), pages 138-147, February.
    19. Andy C.W. Chui & Sheridan Titman & K.C. John Wei, 2010. "Individualism and Momentum around the World," Journal of Finance, American Finance Association, vol. 65(1), pages 361-392, February.
    20. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    21. Furnham, Adrian & Boo, Hua Chu, 2011. "A literature review of the anchoring effect," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(1), pages 35-42, February.
    22. Frijns, Bart & Gilbert, Aaron & Lehnert, Thorsten & Tourani-Rad, Alireza, 2013. "Uncertainty avoidance, risk tolerance and corporate takeover decisions," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2457-2471.
    23. Chapman, Gretchen B. & Johnson, Eric J., 1999. "Anchoring, Activation, and the Construction of Values, , , , , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 79(2), pages 115-153, August.
    24. Siegel, Jordan I. & Licht, Amir N. & Schwartz, Shalom H., 2011. "Egalitarianism and international investment," Journal of Financial Economics, Elsevier, vol. 102(3), pages 621-642.
    25. Bergman, Oscar & Ellingsen, Tore & Johannesson, Magnus & Svensson, Cicek, 2010. "Anchoring and cognitive ability," Economics Letters, Elsevier, vol. 107(1), pages 66-68, April.
    26. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yong-Ho Cheon & Kuan-Hui Lee, 2018. "Maxing Out Globally: Individualism, Investor Attention, and the Cross Section of Expected Stock Returns," Management Science, INFORMS, vol. 64(12), pages 5807-5831, December.
    2. Illiashenko, Pavlo, 2019. "“Tough Guy” vs. “Cushion” hypothesis: How does individualism affect risk-taking?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 24(C).
    3. Goodell, John W., 2019. "Comparing normative institutionalism with intended rationality in cultural-finance research," International Review of Financial Analysis, Elsevier, vol. 62(C), pages 124-134.
    4. Illiashenko, Pavlo & Laidroo, Laivi, 2020. "National culture and bank risk-taking: Contradictory case of individualism," Research in International Business and Finance, Elsevier, vol. 51(C).
    5. Acker, Daniella & Duck, Nigel W., 2008. "Cross-cultural overconfidence and biased self-attribution," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1815-1824, October.
    6. Daniel Fonseca Costa & Francisval Carvalho & Bruno César Moreira & José Willer Prado, 2017. "Bibliometric analysis on the association between behavioral finance and decision making with cognitive biases such as overconfidence, anchoring effect and confirmation bias," Scientometrics, Springer;Akadémiai Kiadó, vol. 111(3), pages 1775-1799, June.
    7. Ray Saadaoui Mallek & Mohamed Albaity, 2019. "Individual differences and cognitive reflection across gender and nationality the case of the United Arab Emirates," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1567965-156, January.
    8. Meub, Lukas & Proeger, Till & Bizer, Kilian, 2013. "Anchoring: A valid explanation for biased forecasts when rational predictions are easily accessible and well incentivized?," University of Göttingen Working Papers in Economics 166, University of Goettingen, Department of Economics.
    9. Cao, Zhongyu & El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck, 2020. "National culture and the choice of exchange rate regime," Journal of International Money and Finance, Elsevier, vol. 101(C).
    10. Huong Dang, 2014. "How dimensions of national culture and institutional characteristics influence sovereign rating migration dynamics," ZenTra Working Papers in Transnational Studies 42 / 2014, ZenTra - Center for Transnational Studies.
    11. Pascal Gantenbein & Axel Kind & Christophe Volonté, 2019. "Individualism and Venture Capital: A Cross-Country Study," Management International Review, Springer, vol. 59(5), pages 741-777, October.
    12. Bukalska Elżbieta, 2019. "Testing trade-off theory and pecking order theory under managerial overconfidence," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 55(2), pages 99-117, June.
    13. Goodell, John W. & Kumar, Satish & Lahmar, Oumaima & Pandey, Nitesh, 2023. "A bibliometric analysis of cultural finance," International Review of Financial Analysis, Elsevier, vol. 85(C).
    14. Bonaccorsi, Andrea & Apreda, Riccardo & Fantoni, Gualtiero, 2020. "Expert biases in technology foresight. Why they are a problem and how to mitigate them," Technological Forecasting and Social Change, Elsevier, vol. 151(C).
    15. Grossmann, Axel & Ngo, Thanh, 2022. "Cross-country cultural and economic freedom influences on the relationship between economic policy uncertainty and ADR mispricing," Research in International Business and Finance, Elsevier, vol. 62(C).
    16. Haq, Mamiza & Hu, Daniel & Faff, Robert & Pathan, Shams, 2018. "New evidence on national culture and bank capital structure," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 41-64.
    17. Chui, Andy C.W. & Li, Xiao & Saffar, Walid, 2021. "National culture and the choice between bank debt and public debt," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    18. Meub, Lukas & Proeger, Till, 2016. "Can anchoring explain biased forecasts? Experimental evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 12(C), pages 1-13.
    19. Benoît, Jean-Pierre & Dubra, Juan, 2007. "Overconfidence?," MPRA Paper 6017, University Library of Munich, Germany, revised Nov 2007.
    20. Jinrui Pan & Jason Shachat & Sijia Wei, 2020. "Cognitive reflection and economic order quantity inventory management: An experimental investigation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(6), pages 998-1009, September.

    More about this item

    Keywords

    anchoring; overconfidence; culture; cognitive reflection test;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:ijomae:v:53:y:2017:i:3:p:48-66:n:4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.sgh.waw.pl/kgs/en .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.