Overconfidence and decision-making in Financial Markets

Abstract

This study aims to expand the knowledge of the effects of overconfidence on decision-making in financial markets. Particularly, on the effects of overconfidence levels in general knowledge question and financial markets, the effects of overconfidence and decision-making in asset markets, and the different possible decision mechanisms, such as group decision-making and feedback in individual decision-making, above any other, to possibly reduce the level of overconfidence. To reach this objective, a calibration test to measure levels of overconfidence, and a controlled laboratory experiment, where a double auction of asset markets, has been conducted. A correlation among levels of overconfidence in general knowledge questions and overconfidence levels in financial decision-making is expected, as well as a correlation among overconfidence and riskier financial decisions in asset markets. Additionally, it is expected to identify a reduction in overconfidence with feedback availability, and an increase in confidence and a decrease in accuracy when making decisions in group.