Three Essays on the Effect of Overconfidence on Economic Decision Making

<p>This dissertation uses experimental evidence to explore the effects of overconfidence on economic decision making. In Chapter 1 I provide experimental evidence of the effects of alcohol on overconfidence and several other important tasks. I also explore the relationship between overconfidence and the behavior in the other tasks. The data from this experiment show that an alcohol level of 0.08 does not have a systemic effect on behavior and more importantly it does not affect one’s level of overconfidence. I also show that overconfidence is not significantly correlated with risk preferences, math, strategic behavior, anchoring, altruism, and food choices. In Chapter 2 I use feedback to establish a causal link between overconfidence and trading behavior. Feedback is used to eliminate the possibility for subjects to be overconfident about the accuracy of their signals. The data from this experiment show that overconfidence affects trading volume and profits, but when feedback is provided trading volume is no longer affected by overconfidence. This shows that there exists a causal relationship between overconfidence and trading volume. Lastly, Chapter 3 explores the role of overconfidence on insurance purchasing decisions. I show that overconfident people buy significantly less insurance. The stability of overconfidence using different measures and the relationship between overconfidence and risk is also explored. I find that different tasks do not elicit the same level of overconfidence and that risk preferences and overconfidence are not statistically significantly correlated. </p>

Name thesis:degree_name

Doctor of Philosophy in Economics (PhD)

Level thesis:degree_level

Dissertation

Year dc:date.available

2017

Author dc:creator

• Bregu, Klajdi

Advisor dc:contributor.advisor

• Deck, Cary

Contributors dc:contributor

• Hao, Li
• McGee, Peter J.

• Alcohol
• Asset Markets
• Insurance
• Overconfidence
• Overtrading
• Behavioral Economics

Repository record dc:identifier

https://scholarworks.uark.edu/etd/2397

OAI identifier oai:identifier

oai:scholarworks.uark.edu:etd-3937