Overconfidence, Gender and Skills
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Overconfidence is overrating of individual’s own competence and thus the feeling of competence controls the action (Griffin the Tversky, 1992). This emotional bias comes to financial decisions, we ask the question in this study: is overconfidence independent of an individual’s objective knowledge? This paper presents the results of a laboratory experiment designed to deal with the questions of whether measured overconfidence and competence influence an individual’s willingness to pay for an investment. In addition, we examine whether overconfidence and competence may explain the contradictory evidence on gender differences. The empirical tests provide strong support for the behavioral finance model. Men trade more than women and thereby reduce their returns more than do women. Furthermore, these differences are most pronounced between single men and single woman. We believe that there is a simple and powerful explanation for the high levels of counterproductive trading in financial markets: overconfidence.
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