Impact of overoptimism and overconfidence on economic behavior: Literature review, measurement methods and empirical evidence

Table of Contents

1. INTRODUCTION

2. LITERATURE REVIEW

2.1. DEFINITIONS

2.2. CHARACTERISTICS

2.2.1. Inherent Bias Structure

2.2.2. Agent Characteristics

2.2.3. Project Characteristics

2.2.4. Agent-Project Relationship

2.3. IMPACT ON ECONOMIC BEHAVIOR

2.3.1. Impact on Private Behavior

2.3.2. Impact on Business Behavior

2.4. IMPACT ON COMPANY VALUE AND OVERALL WELFARE

2.5. PRELIMINARY CONCLUSION

3. MEASUREMENT METHODS

3.1. METHODS BASED ON QUALITATIVE EXPRESSIONS

3.2. METHODS BASED ON SUBJECTIVE VALUATION

3.2.1. Subjective Valuation and Overoptimism

3.2.2. Subjective Valuation and Overconfidence

3.3. ACTION-BASED METHODS

3.4. PRELIMINARY CONCLUSION

4. EMPIRICAL EVIDENCE

4.1. DEFINITIONS

4.2. DATA

4.3. BIAS AND GENDER

4.4. BIAS AND INDUSTRY AFFILIATION

4.5. BIAS AND COMPANY LIFE CYCLE

4.6. BIAS AND REMUNERATION RISK PROFILE

4.7. BIAS AND INDIVIDUAL SUCCESS

4.8. PRELIMINARY CONCLUSION

5. CONCLUSION

Research Objectives and Core Themes

This thesis examines the influence of overoptimism and overconfidence on economic behavior. It aims to synthesize existing literature, identify robust measurement methods for these traits, and provide empirical evidence regarding their prevalence and impact on decision-making across different individual and professional contexts.

• Theoretical definitions and structural characteristics of overoptimism and overconfidence.
• Impact of cognitive biases on private and business decision-making processes.
• Methodological analysis of qualitative, subjective, and action-based measurement techniques.
• Empirical investigation into the correlations between biasedness and demographic/professional characteristics.
• Analysis of the broader implications of behavioral biases for corporate value and economic welfare.

Excerpt from the Book

Summary of Chapters

1. INTRODUCTION: Outlines the shift from traditional rational economic theory to behavioral economics, highlighting the research focus on overconfidence and overoptimism.

2. LITERATURE REVIEW: Categorizes and synthesizes academic research regarding the characteristics and economic impacts of overoptimism and overconfidence in both personal and professional environments.

3. MEASUREMENT METHODS: Evaluates various empirical approaches used to identify and quantify estimation biases, distinguishing between qualitative, subjective, and action-based methodologies.

4. EMPIRICAL EVIDENCE: Presents an empirical study analyzing the connection between bias levels and individual characteristics such as gender, industry, company life cycle, and professional success.

5. CONCLUSION: Summarizes key findings and proposes future research directions regarding the persistence and impact of cognitive biases in organizational and economic decision-making.

Keywords

Behavioral Economics, Overoptimism, Overconfidence, Growth Perception Bias, Risk Perception Bias, Better-than-average Effect, Illusion of Control, Investment Valuation, Corporate Financing, Economic Behavior, Decision Making, Cognitive Bias, Self-serving Bias, Behavioral Finance, Empirical Evidence.

Frequently Asked Questions

What is the core focus of this thesis?

This work explores the behavioral economic traits of overoptimism and overconfidence, examining how these cognitive biases influence decision-making and economic outcomes.

What are the primary themes discussed?

The paper covers the theoretical classification of biases, their impact on corporate finance and investment, methodologies for measuring them, and their correlation with professional and personal characteristics.

What is the main goal of the research?

The thesis aims to provide a comprehensive framework for understanding how these biases operate, evaluate the reliability of current measurement methods, and empirically test their influence on business-related decisions.

Which methodologies are employed?

The study utilizes a literature review to synthesize theoretical models and conducts an empirical survey (n=38) among graduates to test hypotheses regarding bias correlations with demographics and industry choices.

What topics are covered in the main section of the paper?

The main section details definitions, the inherent structures of these biases, their impact on private and professional decision-making (specifically hierarchy, performance, valuation, and financing), and their effect on company value.

Which keywords best characterize this work?

The work is characterized by terms such as Behavioral Economics, Growth/Risk Perception Bias, Better-than-average Effect, and Corporate Financing.

How does the author distinguish between overoptimism and overconfidence?

The author defines overoptimism primarily as a "growth perception bias" and overconfidence as a "risk perception bias," noting that while related, they involve different estimation parameters.

What did the empirical analysis regarding company life cycle reveal?

The empirical findings suggested that students planning to work for established players exhibited higher biasedness, which paradoxically contradicted the initial hypothesis that entrepreneurs would be the most biased group.