Does expertise influence the impact of overconfidence on judgment, valuation and investment decision?

Journal of Economic Psychology

Volumn 33, Issue 6, 2012, Pages 1115-1128

  Lambert, Jérôme ^a   Bessière, Véronique ^a   N'Goala, Gilles ^b  

^a UNIV MONTPELLIER   (France)

^b MONTPELLIER BUSINESS SCHOOL   (France)

Author keywords

Banker; Expertise; Forecasting; Investment decision; Loan officer; Overconfidence; Risk aversion; Risk perception

Indexed keywords

EID: 84865413932     PISSN: 01674870     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.joep.2012.07.007     Document Type: Review

References (77)

1. Alicke M.D., Klotz M.L., Breitenbecher D.L., Yurak T.J., Vredenburg D.S. Personal contact, individuation, and the better than average effect. Journal of Personality and Social Psychology 1995, 68:804-825.
2. Alpert M., Raiffa H. A progress report on the training of probability assessors. Judgment under uncertainty: Heuristics and biases 1982, Cambridge university press. D. Kahneman, P. Slovic, A. Tversky (Eds.).
3. Andersson P. Does experience matter in lending? A process-tracing study on experienced loan officers' and novices' decision behavior. Journal of Economic Psychology 2004, 25:471-492.
4. Bandura A. Social learning theory 1977, Prentice Hall, Englewood Cliffs, NJ.
5. Barber B.M., Odean T. Trading is hazardous to your wealth: The common stock investment performance of individual investors. Journal of Finance 2000, 55:773-806.
6. Barber B.M., Odean T. Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics 2001, 116:261-292.
7. Baron R.M., Kenny D.A. The moderator-mediator variable distinction in social psychological research: Conceptual, strategic and statistical considerations. Journal of Personality and Social Psychology 1986, 51:1173-1182.
8. Bedard J., Chi M.T.H. Expertise in auditing. Auditing: A Journal of Practice and Theory 1993, 12:21-45.
9. Benos A.V. Aggressiveness and survival of overconfident traders. Journal of Financial Markets 1998, 1:353-383.
10. Biais B., Hilton D., Mazurier K., Pouget S. Judgmental overconfidence, self-monitoring, and trading performance in an experimental financial market. Review of Economic Studies 2005, 72:287-312.
11. Brockhaus R.H. Risk-taking propensity of entrepreneurs. Academy of Management Journal 1980, 23:509-520.
12. Busenitz L., Barney J. Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision making. Journal of Business Venturing 1997, 12:9-30.
13. Camerer C.F., Johnson E.J. The process-performance paradox in expert judgment: How can experts know so much and predict so badly?. Toward a general theory of expertise: Prospects and limits 1991, 195-217. Cambridge University Press, New York. K.A. Ericsson, J. Smith (Eds.).
14. Campbell W.K., Goodie A.S., Foster J.D. Narcissism, confidence, and risk attitude. Journal of Behavioral Decision Making 2004, 17:481-502.
15. Chase W.G., Simon H.A. The mind's eye in chess. Visual Information Processing 1973, 215-281. Academic Press, New York. W.G. Chase (Ed.).
16. Cosmides L., Tooby J. Are humans good intuitive statisticians after all? Rethinking some conclusions from the literature on judgment under uncertainty. Cognition 1996, 58:1-73.
17. Daniel K., Titman S. Market efficiency in an irrational world. Financial Analysts Journal 1999, 55:28-40.
18. Daniel K., Hirshleifer D., Subrahmanyam A. Overconfidence, arbitrage, and equilibrium asset pricing. Journal of Finance 1998, 53:921-965.
19. De Long J.B., Shleifer A., Summers L., Waldmann R.J. Positive feedback investment strategies and destabilizing speculation. Journal of Finance 1990, 45:379-395.
20. Diamond D. Reputation acquisition in debt markets. Journal of Political Economy 1991, 97:828-862.
21. Du N., Budescu D.V. Does past volatility affect investors' price forecasts and confidence judgments?. International Journal of Forecasting 2007, 23:497-511.
22. Dumont, M., Schwarzer, R., & Jerusalem, M. (2000). French adaptation of the general self-efficacy scale. Berlin University, <>. http://www.userpage.fu-berlin.de/~health/french.htm.
23. Fellner G., Krügel S. Judgmental overconfidence. Three measures, one bias?. Journal of Economic Psychology 2012, 33:142-154.
24. Fischhoff B. Perceived informativeness of facts. Journal of Experimental Psychology: Human Perception and Performance 1977, 3:349-358.
25. Fischhoff B., Slovic P., Lichtenstein S. Knowing with certainty: The appropriateness of extreme confidence. Journal of Experimental Psychology: Human Perception and Performance 1977, 3:552-564.
26. Frascara J. Cognition, emotion and other inescapable dimensions of human experience. Visible Language 1999, 33:74-87.
27. Ganzach Y. Judging risk and return of financial assets. Organizational Behavior and Human Decision Processes 2000, 83:353-370.
28. Gervais S., Odean T. Learning to be overconfident. Review of Financial Studies 2001, 14:1-27.
29. Gigerenzer G., Hoffrage U., Kleinbölting H. Probabilistic mental models: A Brunswikian theory of confidence. Psychological Review 1991, 98:506-528.
30. Glaser M., Weber M. Overconfidence and trading volume. Geneva Risk Insurance Review 2007, 32:1-36.
31. Glaser M., Langer T., Weber M. On the trend recognition and forecasting ability of professional traders. Decision Analysis 2007, 4:176-193.
32. Granhag P.A., Strömwall L.A., Allwood C.M. Effects of reiteration, memory, and feedback on eyewitnesses' confidence. Applied Cognitive Psychology 2000, 14:397-420.
33. Griffin D., Tversky A. The weighing of evidence and the determinants of overconfidence. Cognitive Psychology 1992, 24:411-435.
34. Hayward M., Hambrick D.C. Explaining the premiums paid for large acquisitions: Evidence of CEO hubris. Administrative Science Quarterly 1997, 42:103-127.
35. Heath C., Tversky A. Preferences and beliefs: Ambiguity and competence in choice under uncertainty. Journal of Risk and Uncertainty 1991, 4:5-28.
36. Hilton D.J., Régner I., Cabantous L., Charalambides L., Vautier S. Do positive illusions predict overconfidence in judgment? A test using interval production and probability evaluation measures of miscalibration. Journal of Behavioral Decision Making 2011, 24:117-139.
37. Hirshleifer D., Thakor A.V. Managerial conservatism, project choice, and debt. Review of Financial Studies 1992, 5:437-470.
38. Hodgkinson G.P., Bown N.J., Maule A.J., Glaister K.W. Breaking the frame: An analysis of strategic cognition and decision making under uncertainty. Strategic Management Journal 1999, 20:977-985.
39. Hoffman R.R., Shadbolt N.R., Burton A.M., Klein G. Eliciting knowledge from experts: A methodological analysis. Organizational Behavior and Human Decision Processes 1995, 62:129-158.
40. Juslin, P. N., Laukka, P., Liljeström, S., Västfjäll, D., & Lundqvist, L. O. (2011). Emotional reactions to music in a nationally representative sample of Swedish adults: Prevalence and causal influences. Musicae Scientiae,15 174-207. A survey study of emotional reactions to music in everyday life.
41. Kim K.A., Nofsinger J.R. The behavior and performance of individual investors in Japan 2002, Review of Financial Studies Conference, Mannheim.
42. Kirchler E., Maciejovsky B. Simultaneous Over- and Underconfidence. Evidence from Experimental Asset Markets. Journal of Risk and Uncertainty 2002, 25:65-85.
43. Klayman J., Soll J., Gonzalez-Vallejo C., Barlas S. Overconfidence: It depends on how, what, and whom you ask. Organizational Behavior and Human Decision Processes 1999, 79:216-247.
44. Langer E.J., Roth J. Heads I win, tails it's chance: The illusion of control as a function of the sequence of outcomes in a purely chance task. Journal of Personality and Social Psychology 1975, 32:951-955.
45. Larrick R.P., Burson K.A., Soll J.B. Social comparison and confidence: When thinking you're better than average predicts overconfidence. Organizational Behavior and Human Decision Processes 2007, 102(1):76-94.
46. Lee C., Swaminathan B. Price momentum and trading volume. Journal of Finance 2000, 55:2017-2069.
47. Li X. Performance, herding, and career concerns of individual financial analysts 2002, Vanderbilt University, Working Paper.
48. Lichtenstein S., Fischhoff B. Do those who know more also know more about how much they know? The calibration of probability judgments. Organizational Behavior and Human Performance 1977, 3:552-564.
49. Maciejovsky B., Kirchler E. Simultaneous over-and underconfidence: Evidence from experimental asset markets. Journal of Risk and Uncertainty 2002, 25:65-85.
50. MacCrimmon K.R., Wehrung D.A. Characteristics of risk taking executives. Management Science 1990, 36:422-435.
51. Malmendier U., Tate G. CEO overconfidence and corporate investment. Journal of Finance 2005, 60:2661-2700.
52. Menkhoff L., Schmidt U., Brozynski T. The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence. European Economic Review 2006, 50:1753-1766.
53. Moore D.A., Healy P.J. The trouble with overconfidence. Psychological Review 2008, 115(2):502-517.
54. Nelson T.O., Narens L. A new technique for investigating the feeling of knowing. Acta Psychologica 1980, 46:69-80.
55. Newell A., Simon H.A. Human problem solving 1972, Prentice-Hall, Englewood Cliffs, New Jersey.
56. Nosić A., Weber M. How risky do I invest: The role of risk attitudes, risk perceptions and overconfidence 2008, University of Mannheim, Working Paper.
57. Odean T. Volume, volatility, price, and profit when all traders are above average. Journal of Finance 1998, 53:1887-1934.
58. Odean T. Do investors trade too much?. American Economic Review 1999, 89:1279-1298.
59. önkal D., Yates J.F., Simga-Mugan C., öztin S. Professional vs. amateur judgment accuracy: The case of foreign exchange rates. Organizational Behavior and Human Decision Processes 2003, 92:169-185.
60. Payne J.W. Relation of perceived risk to preferences among gambles. Journal of Experimental Psychology: Human Perception and Performance. 1975, 1:86-94.
61. Prendergast C., Stole L. Impetuous youngsters and jaded old-timers: Acquiring a reputation for learning. Journal of Political Economy 1996, 194:1105-1134.
62. Russo J.E., Schoemaker P. Managing overconfidence. Sloan Management Review 1992, 33:7-17.
63. Sachse K., Jungermann H., Belting J.M. Investment risk - The perspective of individual investors. Journal of Economic Psychology 2012, 33:437-447.
64. Sarasvathy D.K., Simon H.A., Lave L. Perceiving and managing business risk: Differences between entrepreneurs and bankers. Journal of Economic Behavior and Organization 1998, 33:207-225.
65. Shanteau J. Competence in experts: The role of task characteristics. Organizational Behavior and Human Decision Processes 1992, 53:252-266.
66. Shanteau J. How much information does an expert use? Is it relevant?. Acta Psychologica 1992, 81:75-86.
67. Simon M., Houghton S., Aquino K. Cognitive biases, risk perception, and venture formation: How individuals decide to start companies. Journal of Business Venturing 1999, 15:113-134.
68. Slovic P. The relative influence of probabilities and payoffs upon perceived risk. Psychonomic Science 1967, 9:223-224.
69. Sniezek J.A., Buckley T. Confidence depends on level of aggregation. Journal of Behavioral Decision Making 1991, 4:263-272.
70. Statman M., Thorley S., Vorkink K. Investor overconfidence and trading volume 2004, Working Paper.
71. Svenson O. Are we less risky and more skillful than our fellow drivers?. Acta Psychologica 1981, 47:143-148.
72. Teigen K.H., Jorgensen M. When 90% confidence intervals are 50% certain: On the credibility of credible intervals. Applied Cognitive Psychology 2005, 19:455-475.
73. Von Holstein S. Probabilities forecasting: an experiment related to the stock market. Organizational Behavior and Human Performance 1972, 8:139-158.
74. Weber E.U., Milliman R.A. Perceived risk attitudes: Relating risk perception to risky choice. Management Science 1997, 43:123-144.
75. Weber E.U., Anderson C.J., Birnbaum M.H. A theory of perceived risk and attractiveness. Organizational Behavior and Human Decision Processes 1992, 52:492-523.
76. Weber E.U., Senmorgen N., Weber M. Communicating asset risk : how name recognition and the format of historic volatility information affect risk perception and investment decisions. Risk Analysis 2005, 25:597-609.
77. Yates J.F., McDaniel L.S., Brown E.S. Probabilistic forecasts of stock prices and earnings: The hazards of nascent expertise. Organizational Behavior and Human Decision Processes 1991, 42:145-171.