Clarifying Managerial Biases Using a Probabilistic Framework

Journal of Behavioral and Experimental Finance

24 Pages Posted: 26 May 2020 Last revised: 15 Jan 2021

See all articles by Polina Ellina

Polina Ellina

affiliation not provided to SSRN

Briance Mascarenhas

Rutgers, The State University of New Jersey - Rutgers University, Camden

Panayiotis Theodossiou

Ball State University

Date Written: April 27, 2020

Abstract

A unified probabilistic framework is developed to analyze and compare the impact of the psychological biases of overconfidence and underconfidence on managerial perceptions about the expected value, overall risk, downside risk, value-at-risk (VaR) and expected shortfall (ES) of decision-making economic variables. The results depict that overconfident managers overestimate their expected values and underestimate downside risk, VaR and ES of decision-making variables. Underconfident managers, on the other hand, underestimate their expected values and overestimate

Keywords: Downside risk; expected shortfall; probability miscalibration; psychological biases; skewed normal distribution; value-at-risk.

JEL Classification: G4, C46

Suggested Citation

Ellina, Polina and Mascarenhas, Briance and Theodossiou, Panayiotis, Clarifying Managerial Biases Using a Probabilistic Framework (April 27, 2020). Journal of Behavioral and Experimental Finance, Available at SSRN: https://ssrn.com/abstract=3586740 or http://dx.doi.org/10.2139/ssrn.3586740

Polina Ellina

affiliation not provided to SSRN

Briance Mascarenhas

Rutgers, The State University of New Jersey - Rutgers University, Camden ( email )

Camden, NJ 08102
United States

Panayiotis Theodossiou (Contact Author)

Ball State University ( email )

2000 W. University Ave
Muncie, IN Delaware 47306
United States

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