Overconfidence, Effort, and Investment (Replaced by CentER DP 2014-039)

E.S. Pikulina, L.D.R. Renneboog, J.R. Ter Horst, P.N. Tobler

Research output: Working paperDiscussion paperOther research output

Abstract

Abstract: The theoretical finance literature predicts that overconfident managers overinvest in risky projects and exert more effort to learn about potentially value-enhancing projects in comparison with their unbiased peers. We test this prediction experimentally. We demonstrate that strong overconfidence results in overinvestment and excess effort levels, moderate overconfidence leads to accurate decisions, and underconfidence induces underinvestment and insufficient effort. Our results can be generalized as they are based on different subject types (financial professionals and students), various media (computer-, paper-, and web-based designs), and different types of effort costs (real effort and monetary investment costs).
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages52
Volume2013-035
Publication statusPublished - 2013

Publication series

NameCentER Discussion Paper
Volume2013-035

Fingerprint

Overconfidence
Costs
Finance
Web-based
Prediction
Managers
Peers
Overinvestment
Underinvestment

Keywords

  • Self-confidence
  • Overconfidence
  • Judgmental Bias
  • Better-than-Average
  • Overinvestment
  • Investment Choice
  • Effort

Cite this

Pikulina, E. S., Renneboog, L. D. R., Ter Horst, J. R., & Tobler, P. N. (2013). Overconfidence, Effort, and Investment (Replaced by CentER DP 2014-039). (CentER Discussion Paper; Vol. 2013-035). Tilburg: Finance.
Pikulina, E.S. ; Renneboog, L.D.R. ; Ter Horst, J.R. ; Tobler, P.N. / Overconfidence, Effort, and Investment (Replaced by CentER DP 2014-039). Tilburg : Finance, 2013. (CentER Discussion Paper).
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abstract = "Abstract: The theoretical finance literature predicts that overconfident managers overinvest in risky projects and exert more effort to learn about potentially value-enhancing projects in comparison with their unbiased peers. We test this prediction experimentally. We demonstrate that strong overconfidence results in overinvestment and excess effort levels, moderate overconfidence leads to accurate decisions, and underconfidence induces underinvestment and insufficient effort. Our results can be generalized as they are based on different subject types (financial professionals and students), various media (computer-, paper-, and web-based designs), and different types of effort costs (real effort and monetary investment costs).",
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Pikulina, ES, Renneboog, LDR, Ter Horst, JR & Tobler, PN 2013 'Overconfidence, Effort, and Investment (Replaced by CentER DP 2014-039)' CentER Discussion Paper, vol. 2013-035, Finance, Tilburg.

Overconfidence, Effort, and Investment (Replaced by CentER DP 2014-039). / Pikulina, E.S.; Renneboog, L.D.R.; Ter Horst, J.R.; Tobler, P.N.

Tilburg : Finance, 2013. (CentER Discussion Paper; Vol. 2013-035).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Overconfidence, Effort, and Investment (Replaced by CentER DP 2014-039)

AU - Pikulina, E.S.

AU - Renneboog, L.D.R.

AU - Ter Horst, J.R.

AU - Tobler, P.N.

N1 - Pagination: 52

PY - 2013

Y1 - 2013

N2 - Abstract: The theoretical finance literature predicts that overconfident managers overinvest in risky projects and exert more effort to learn about potentially value-enhancing projects in comparison with their unbiased peers. We test this prediction experimentally. We demonstrate that strong overconfidence results in overinvestment and excess effort levels, moderate overconfidence leads to accurate decisions, and underconfidence induces underinvestment and insufficient effort. Our results can be generalized as they are based on different subject types (financial professionals and students), various media (computer-, paper-, and web-based designs), and different types of effort costs (real effort and monetary investment costs).

AB - Abstract: The theoretical finance literature predicts that overconfident managers overinvest in risky projects and exert more effort to learn about potentially value-enhancing projects in comparison with their unbiased peers. We test this prediction experimentally. We demonstrate that strong overconfidence results in overinvestment and excess effort levels, moderate overconfidence leads to accurate decisions, and underconfidence induces underinvestment and insufficient effort. Our results can be generalized as they are based on different subject types (financial professionals and students), various media (computer-, paper-, and web-based designs), and different types of effort costs (real effort and monetary investment costs).

KW - Self-confidence

KW - Overconfidence

KW - Judgmental Bias

KW - Better-than-Average

KW - Overinvestment

KW - Investment Choice

KW - Effort

M3 - Discussion paper

VL - 2013-035

T3 - CentER Discussion Paper

BT - Overconfidence, Effort, and Investment (Replaced by CentER DP 2014-039)

PB - Finance

CY - Tilburg

ER -

Pikulina ES, Renneboog LDR, Ter Horst JR, Tobler PN. Overconfidence, Effort, and Investment (Replaced by CentER DP 2014-039). Tilburg: Finance. 2013. (CentER Discussion Paper).