Overconfidence, Stability and Investments

Dessi, Roberta and Zhao, Xiaojian (2018) Overconfidence, Stability and Investments. Journal of Economic Behavior and Organization (145). pp. 474-494.

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Official URL: http://tse-fr.eu/pub/32252

Abstract

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: Article
Language: English
Date: January 2018
Refereed: Yes
Uncontrolled Keywords: Self-confidence, investment, cultural differences, cultural transmission, shame
JEL codes: D03 - Behavioral Economics; Underlying Principles
D83 - Search; Learning; Information and Knowledge; Communication; Belief
Z1 - Cultural Economics; Economic Sociology; Economic Anthropology
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 17 May 2018 09:53
Last Modified: 28 Jun 2019 14:26
OAI ID: oai:tse-fr.eu:32252
URI: http://publications.ut-capitole.fr/id/eprint/25776

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