Overconfidence, Effort, and Investment (Revised version of CentER DP 2013-035)

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

Research output: Working paperDiscussion paperOther research output

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Abstract

A positive relation between confidence and effort/investment provision has been
theoretically justified and practically assumed in the literature, but has not been
thoroughly investigated. We test and confirm this positive relation between direct
measures of confidence and choice of effort or investment. More precisely, strong
overconfidence results in excess investment of effort and money, underconfidence
induces insufficient effort provision and underinvestment, and moderate
overconfidence leads to accurate decisions. Our experimental results can be
generalized as they are based on different subject pools (financial professionals and
students), media (computer-, paper-, and web-based), and types of effort (real
mental effort and monetary effort, i.e. investment).
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages39
Volume2014-039
Publication statusPublished - 23 Jun 2014

Publication series

NameCentER Discussion Paper
Volume2014-039

Fingerprint

Overconfidence
Confidence
Web-based
Underinvestment

Keywords

  • Self-confidence
  • Overconfidence
  • Judgmental Bias
  • Overinvestment
  • Investment Choice
  • Effort

Cite this

Pikulina, E. S., Renneboog, L. D. R., & Tobler, P. N. (2014). Overconfidence, Effort, and Investment (Revised version of CentER DP 2013-035). (CentER Discussion Paper; Vol. 2014-039). Tilburg: Finance.
Pikulina, E.S. ; Renneboog, L.D.R. ; Tobler, P.N. / Overconfidence, Effort, and Investment (Revised version of CentER DP 2013-035). Tilburg : Finance, 2014. (CentER Discussion Paper).
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Pikulina, ES, Renneboog, LDR & Tobler, PN 2014 'Overconfidence, Effort, and Investment (Revised version of CentER DP 2013-035)' CentER Discussion Paper, vol. 2014-039, Finance, Tilburg.

Overconfidence, Effort, and Investment (Revised version of CentER DP 2013-035). / Pikulina, E.S.; Renneboog, L.D.R.; Tobler, P.N.

Tilburg : Finance, 2014. (CentER Discussion Paper; Vol. 2014-039).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Overconfidence, Effort, and Investment (Revised version of CentER DP 2013-035)

AU - Pikulina, E.S.

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AU - Tobler, P.N.

PY - 2014/6/23

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N2 - A positive relation between confidence and effort/investment provision has beentheoretically justified and practically assumed in the literature, but has not beenthoroughly investigated. We test and confirm this positive relation between directmeasures of confidence and choice of effort or investment. More precisely, strongoverconfidence results in excess investment of effort and money, underconfidenceinduces insufficient effort provision and underinvestment, and moderateoverconfidence leads to accurate decisions. Our experimental results can begeneralized as they are based on different subject pools (financial professionals andstudents), media (computer-, paper-, and web-based), and types of effort (realmental effort and monetary effort, i.e. investment).

AB - A positive relation between confidence and effort/investment provision has beentheoretically justified and practically assumed in the literature, but has not beenthoroughly investigated. We test and confirm this positive relation between directmeasures of confidence and choice of effort or investment. More precisely, strongoverconfidence results in excess investment of effort and money, underconfidenceinduces insufficient effort provision and underinvestment, and moderateoverconfidence leads to accurate decisions. Our experimental results can begeneralized as they are based on different subject pools (financial professionals andstudents), media (computer-, paper-, and web-based), and types of effort (realmental effort and monetary effort, i.e. investment).

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Pikulina ES, Renneboog LDR, Tobler PN. Overconfidence, Effort, and Investment (Revised version of CentER DP 2013-035). Tilburg: Finance. 2014 Jun 23. (CentER Discussion Paper).