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Overconfidence, Stability and Investments

Dessi, Roberta and Zhao, Xiaojian (2015) Overconfidence, Stability and Investments. TSE Working Paper, n. 15-580, Toulouse

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The available evidence from numerous studies suggests that overconfidence varies significantly across countries. We develop a model that endogenizes these differences and examines their economic consequences. A crucial determinant of difierences in overconfidence is the degree of expected stability of the environment, with greater changefulness giving rise to more overconfident beliefs. When stability is endogenized, multiple equilibria can emerge, \dynamism" and overconfidence reinforcing each other in one case, stability and realistic self-assessment in another. Evidence from 38 countries is consistent with this relationship. Finally, our model also sheds some light on differences in overconfidence within countries, as well as exploring the interaction between overconfidence and sensitivity to shame.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2015
Place of Publication: Toulouse
Uncontrolled Keywords: Self-confidence, investment, cultural differences, cultural transmission, shame
JEL Classification: D03 - Behavioral Economics; Underlying Principles
D83 - Search; Learning; Information and Knowledge; Communication; Belief
Z1 - Cultural Economics; Economic Sociology; Economic Anthropology
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 21 Sep 2015 13:08
Last Modified: 02 Oct 2019 23:02
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