Overconfidence, Effort, and Investment

44 Pages Posted: 21 Jun 2013 Last revised: 23 Jun 2014

See all articles by Elena Pikulina

Elena Pikulina

Tilburg University - Department of Finance

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Philippe Tobler

University of Zurich - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2014

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).

Keywords: Self-confidence, Overconfidence, Judgmental Bias, Overinvestment, Investment Choice, Effort

JEL Classification: G11, J22

Suggested Citation

Pikulina, Elena and Renneboog, Luc and Tobler, Philippe, Overconfidence, Effort, and Investment (June 1, 2014). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 364/2013, Available at SSRN: https://ssrn.com/abstract=2282443

Elena Pikulina

Tilburg University - Department of Finance ( email )

Tilburg, Noord-Brabant
Netherlands

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Philippe Tobler

University of Zurich - Department of Economics ( email )

Zürich, CH-8006
Switzerland

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