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The Review of Economic Studies, Ltd.
Judgemental Overconfidence, Self-Monitoring, and Trading Performance in an Experimental Financial Market Author(s): Bruno Biais, Denis Hilton, Karine Mazurier and Sbastien Pouget Source: The Review of Economic Studies, Vol. 72, No. 2 (Apr., 2005), pp. 287-312 Published by: Oxford University Press Stable URL: http://www.jstor.org/stable/3700653 . Accessed: 04/12/2013 00:40
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ReviewofEconomic Studies (2005) 72, 287-312 ? 2005 TheReviewofEconomicStudiesLimited
0034-6527/05/00130287$02.00
Overconfidence, Judgemental andTrading Self-Monitoring, in an Experimental Performance Market Financial

BRUNO BIAIS, DENIS HILTON andKARINE MAZURIER
Toulouse University and
SEBASTIEN POUGET
GeorgiaStateUniversity
First version receivedFebruary 2002; finalversion acceptedApril2004 (Eds.) We measure i.e. the of miscalibration, thedegreeof overconfidence in judgement (in theform ofattentiveness to overestimate theprecision ofone's information) andself-monitoring (a form tendency to social cues) of 245 participants financial market and also observe in an experimental their behaviour under about theconditional information. Miscalibrated traders, asymmetric uncertainty underestimating the asset value, are expectedto be especiallyvulnerable curse.High self-monitors to the winner's are expectedto behave strategically resultsshow that and achieve superior results.Our empirical Theeffect ofthepsychological miscalibration reduces andself-monitoring enhances trading performance. variables is strong for menbutnon-existent for women.
1. INTRODUCTION market we relate from economics andexperimental Allying techniques psychology, experimental datato independent This of theactors involved. measures of thepsychological characteristics enablesus to testhypotheses formarket variables aboutthe consequences of psychological behaviour. Our experimental information relieson an asymmetric trading game directly approach Plott and Sunder The asset can be high(490), medium value of the (240), inspired (1988). by or low (50). The traders of when the value the different For observe example, private signals. assetis highhalftheparticipants learn areprivately that itis notlow,whiletheothers informed in a call auction and that it is notmedium. orders Traders can place limit and market privately an openoutcry curseriskin thistrading continuous Thereis a strong winner's market. game. Forexample, ifan agent with a bullish to buy, sayat 270, thisbidwould signal(not50) offered with neutral be hitbytraders with bearish (not490), whiletraders signals systematically signals Biais andPouget more reluctant toengageintrading. (not240) wouldbe much (1999) showthat in equilibrium in this and atfully should be no trade, revealing prices, except trading gamethere no trading consequently gainsorlosses. is revealedin While the experimental of information data suggests thata fairamount the prices,we also observesignificant deviations from Veryhighpricessignal equilibrium. thatthe asset value is 490 and verylow pricessignalthatthe value is low. unambiguously
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a moreambiguous in theexperiment, transaction However, signal. pricesclose to 240 convey For suchpricestheproportion thetrueassetis 240 is only where of cases in ourexperiments true 52%. Consequently, from in the48% of cases where thepricedeviates value,someof the with thebehavioural In line mustearnnon-negligible at theexpenseof others. players profits can be this whether (1997),we study phenomenon gametheory approach suggested byCamerer factors. predicted bypsychological to as miscalibration, A specific we refer kindofoverconfidence which in one'sjudgement, trades suffer can offer their from torealize that for thefailure an explanation ofsomeparticipants to tend winner's andareconsequently Miscalibrated overestimate curserisk loss making. people task(Alpert theprecision oftheir bias usinga confidence-interval information. this We measure and Raiffa, In Kirchler and asset market, (2002) used Maciejovsky 1982).1 an experimental in predictions of price a confidence-interval evidenceof overconfidence and found technique Benos variations. In a financial market withasymmetric context information, (1998), Daniel, thisform that of Hirshleifer and Subrahmanyam (1998), and Odean (1998) showtheoretically well is suited leadstopoorperformance. overconfidence Ourexperimental approach particularly as well to test ofpsychological thisconclusion, sincewe can relyon direct measures variables, as oftrading performance. from overconfidence in In these in themarket stems theoretical analyses, underperformance theprecision of our ofone'sprivate information structure In the game, participants signal. simple miscalibrated cannot the overestimate oftheir Yet,we expect participants precision signal. private to overestimate their theprecision includes of their information set,which signalas well as the of themarket aboutthevalueof theassetis observation prices.Whenconditional uncertainty willbe less awareof will miscalibrated traders rational In this. contrast, high, agents recognize of theasset.Hence,we and show excessive of the value thus in their assessment confidence this, market circumstances to them be winner's curse. We the vulnerable to expect identify especially where thisproblem is likely to be particularly acute.As mentioned above,in ourexperimental one chancein two(48%) is actually almost data,whentheopening priceis close to 240, there whose thatthetruevalue of theassetis 490 or 50. In thiscontext, miscalibrated participants asset is 240. the worth not rule out believe does that the will value is 240 signal overconfidently losses Thusthey will incur willbe prone to fallintoa winner's cursetrap through whereby they with other whomakegainsattheir trading expense.2 participants In addition in thispaperwe also study to studying a cognitive bias suchas miscalibration, howsocialdispositions to attend is a disposition can affect market Self-monitoring performance. to social cues and to adjustone's behaviour to one's social environment 1974). (Snyder, High behaviour on others, areroleplayers self-monitors theeffect of their whohabitually anticipate andin addition other that market that theothers willbehavestrategically. Anticipating anticipate will will self-monitors be to market as themselves the do, high participants trying manipulate they be less likely and to takemarket willreasonaboutthesignals pricesat facevalue.Rather, they will that theseprices. whenobserving a pricenear240, they For example, strategies generated notso readily should that thisindicates thevalueis 240. Thus,they that jumpto theconclusion be relatively to fallintowinner's and thusshouldavoidthecorresponding cursetraps unlikely losses. trading
1. Otherkindsof overconfidence, our skills,our prospects for to overestimate such as a prevalent tendency ortheprobability ofpositive from a lotofattention outcomes havealso attracted success, (see,e.g. Taylor psychologists and Brown, suchas thebelief that one is is conceptually from illusions" 1988).Miscalibration "positive distinguishable aboveaverage andVautier Cabantous or theillusion ofcontrol. a psychometric Hilton, (2003) Indeed, study byRegner, finds no correlation between illusions". miscalibration andsuch"positive 2. The winner's cursetrapswe identify withthe information similarities are not without trapsanalysedby Plott andWeber characteristics ouremphasis on (andmeasurement Camerer, Noeth, of)psychological (1999). However, differs from ofthemutual their mistaken beliefs. between study consistency
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cohorts of students andtheLondonBusinessSchool from Toulouse Twenty-six University in ourexperimental miscalibration we measured participated game.For245 participants, trading from Russo and Schoemaker usinga scale adapted (1992), and self-monitoring usingthescale behaviour andperformance andGangestad dataabout (1986),andcollected developed bySnyder in theexperimental market. of the Ourbasic analysis characteristics linkbetween focuseson thedirect psychological and their reduces We find that miscalibration trading performance participants trading profits. in theexperimental intothe it.To gainfurther whileself-monitoring enhances market, insights nature we thenanalyse of therelation between variables and market outcomes, psychological winner's cursetraps. To do so, we focuson situations themarket where priceis close to 240, whilethevalueoftheassetis in fact50 or 490. We analysetheconsequences ofpsychological characteristics foragents whiletheir whoarein suchmarket circumstances, private signaldoes notruleoutthat and thevalue is 240. We find that are reduced their by miscalibration profits In contrast, increased is significant. factors Theimpact ofboth byself-monitoring. psychological forparticipants have variables whowerenotexposedto winner's thepsychological cursetraps, no significant arethe winner's cursetraps that on profits. Ourresults therefore impact suggest market. in ourexperimental oftheimpact ofmiscalibration andself-monitoring majorchannel and Since we measure oftrading characteristics performance independently psychological these ourexperiment between variables. offers an opportunity to study therelationships gender, In line withBarberand Odean (2001) we find but that mentendto trademorethanwomen, and whilethey use gender between as a proxy no correlation foroverconfidence we find gender formenand miscalibration. Whenwe splitthedataby gender, and runtheanalysis separately affect we find doesnotsignificantly different ofbehaviour. Whilemiscalibration women, patterns and in This effect is in men. itdoes lead to worseperformance performance women, significant robust acrosssamples.3 While behavioural the clear advantageof financestudiesbased on field data offer of innatural theadvantage experimental markets, documenting approaches phenomena occurring is to studycontrolled about cause and inferences environments, allowingmore confident effect relations.4 To assess causal relations variables between (e.g. miscalibration, independent we use a quasiand variables(e.g. trading self-monitoring) dependent earnings) strategies, than and Rather experimental manipulating design(Cook experimentally Campbell,1979). variations beliefs and Lovallo,1999),we measured (as, e.g. Camerer participants' pre-existing in participants' weeks before several calibration of their and they judgement self-monitoring would in the trading were takento ensurethatparticipants participated game. Precautions notassociatethepsychological measurements withthetrading game.This quasi-experimental method as all things licensesinferences the method of difference being (Mill, 1872/1973), by whichdistinguish there should be miscalibration no other than vs. low factors equal (say) high thesetwogroups us to attribute whenwe contrast their This entitles anysignificant earnings. independent variables oftheindependent variations variables to the causal (e.g.earnings) impact (e.g. miscalibration). The measuresof miscalibration on which we rely have been and self-monitoring andusedpreviously andGangestad (1986) and developed Snyder byexperimental psychologists.
this variable was available. 3. It is also robust where totheinclusion ofIQ in theregressors fora subsample 4. This argument of is similar to thepoint madebyWeber andCamerer (1998,p. 168) abouttheconsequences effect another testofthedisposition thedisposition effect: "a conclusive usingreal psychological phenomenon, namely decisions cannot be controlled market datais usually difficult individual becausetheinvestors' as wellas the expectations, levelthere oreasilyobserved attheaggregate inmarkets is found liketheNewYork StockExchange (NYSE). Ifan effect are often an experimental it.In this to explain investigation present competing plausible hypotheses paperwe therefore ofthedisposition effect".
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Jenkins oftheself-monitoring scale. theinternal (1993) havedocumented validity psychometric andFischhoff Morerecently, andBarlas(1999),Parker (2001), Soll,Gonzales-Vallejo Klayman, inmiscalibration. andJonsson differences individual andAllwood ofstable evidence (2003) offer inmiscalibration Theexperimental variations that literature also suggests psychology significant theexternal and self-monitoring existin numerous outsideour sample,ensuring populations to ofourindependent we askedtheparticipants that thequestions variable. Notefurther validity financial markets measure miscalibration and self-monitoring hadnothing to do with perse, yet tothe Thispoints market. nevertheless affect intheexperimental andperformance they strategies in which are thequestions robustness ofthepsychological ofthecontext constructs independent in Financeand MBA of asked.Finally theMasters notethat oursampleincludes from students Whilemany ofthe theLondonBusinessSchool as well as students ToulouseUniversity. from we find that former had previous and financial in investment markets, professional experience theeffect ofpsychological is robust acrosssubsamples. characteristics The next section presentsthe experimental tradinggame. Section 3 presentsthe a brief Section5 offers traits 4 presents theresults. and ourhypotheses. Section psychological research. offurther conclusion ourresults and sketches someavenues summarizing 2. THE EXPERIMENTALMARKET 2.1. Thetrading game and the The market. The structure theendowments, of themarket, theassetpay-offs, in case in that the are as Market Series in Sunder Plott and 7, C, (1988) except signals present market. As inPlott short salesareallowedandthere inaddition tothecontinuous is a call auction and Sunder dividend at theendof is a single asset,which (1988), there paysa liquidating risky thegamewhich Before canbe 490 francs, with 240 francs, or50 francs trading equalprobability. half the starts theplayers is 490 francs, Whenthedividend receive heterogeneous signals. private is not 50 francs. know that it is know that it not 240 the other half while francs, Similarly, players whenthedividend whilehalf theplayers is 240 francs, know itis not490 francs, halftheplayers knowitis not50 francs, knowitis not490 halftheplayers and whenthedividend is 50 francs, ofthe whilehalftheplayers starts each replication knowitis not240 francs. Each agent francs, with four shares and francs 25,000 (ofexperimental game currency). to buyor sell. As in financial in thefield, or limit orders markets can place market players We consider each replication twotreatments In thefirst fortheexperimental market. treatment, of thetrading In market. withan opening call auction, followed game starts by a continuous thecall auction, as sealedbidsfor theparticipants to theexperimenter can transmit limit orders theexperimenter at each price, written on a piece of paper. up to 10 shares Usingtheseorders, the constructs an aggregate and sets demand and an curve, opening priceat supply aggregate In thelevelmaximizing to the volume. This is announced participants. trading publicly price addition orders at the theparticipants of their receivewritten of theexecution confirmations uniform oraldoubleauction theopening is a continuous call,there lasting opening price.After limit sevenminutes. for one share each orders this can the period, participants place During in continuous writes The the them to time, by announcing experimenter. experimenter verbally these offers on theboard. ofthese orders. Theother see andheartheoccurrence Theycan players hittheseorders thisis thecase limit orders. Whenever orders or marketable by placingmarket transactions orders havenot takeplace,andthis As longas their is observed bytheother players. beenhit, can cancelthem. participants In the secondtreatment, oral double continuous the market starts witha sevenminute inthesequencing, followed thetwo call auction. from this difference auction, bya closing Apart
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andsecondtreatments is treatments areidentical. As discussed thefirst in Section 4, comparing useful to disentangle theimpact ofthedifferent mechanisms from (call vs. continuous) trading theimpact tothefield data ofthesequencing Thisis similar close vs. market (market opening). that found ofAmihud transaction andMendelson 1987paper analysis (1987, 1991).In their they To testwhether theopening on theNYSE wereparticularly call auction pricessetduring noisy. in their thiswas due to thetrading of themarket, or theopening mechanism (thecall auction) 1991paper Whiletheopening market. with their datafrom theJapanese they replicated analysis call prices theafternoon call intheTokyo stock also included a largenoisecomponent, exchange auction didnot. prices theMilgrom and had thesame utility function, Equilibrium. If all market participants would directly Stokey(1982) theorem apply,and thereshouldbe no tradeexceptat fully clear result is rather andhenceno trading ofthis orlosses.The intuition revealing prices, profits in our simpleinformation be inclined structure: withbullishsignals("not50") might traders to buy,but,if theyoffer to purchase the security at pricesabove 240, theyruntheriskof withagents at withbearish (i.e. riskless) profits trading arbitrage signals("not490"), earning to buy at their "not50" shouldnotoffer traders who have observed expense.Consequently, evenwhentraders thislogic,Biais and Pouget(1999) showthat pricesabove 240. Extending at fully havedifferent no trade, with there is a perfect except preferences, Bayesian equilibrium at In thisequilibrium, to buy prices "not50" offer whohaveobserved traders revealing prices. lowerthanor equal to 240, traders to sell at pricesgreater "not490" offer whohaveobserved thanor equal to 240, and traders Given "not240" stayout of themarket. who have observed that to as theothers beneficial a follow thesestrategies, cannot be from them trader, deviating it wouldexposeherto thestrong to make withan agentseeking curseriskof trading winner's arbitrage profits. 2.2. Experimental design cohorts ofstudents 26 different Participants. We rantheexperimental trading gamewith from in thefirst ToulouseUniversity and theLondonBusinessSchool (20 cohorts participated or ineconomics, treatment and6 inthesecondone).Participants students weregraduate finance, cohorts seven without For the Toulouse to students, management previous exposure experiments. were werecomposed sevencohorts of students in theMasters in Finance(DESS de finance), were and cohorts first of Ph.D. de students in Gestion), eight composed (DEA year management et Intermddiaires of first in financial economics (DEA Marchds composed yearPh.D. students the School came from The four of from Business cohorts students the London Financiers). MBA programme had or theMastersin Financeprogramme. them experience many Among as investment While bankers 8 and 18 participants. or traders. between Each cohort included 344 students the 245 based on is in our our participated analysis only trading game, empirical and answers for whom have and for the we reliable data game participants, trading complete to the psychological were of theseparticipants below.Ninety-four described questionnaires of the females and 151 weremales.Each cohort in four experiment. replications participated ofthe We randomly a dicein front drew therealizations ofthefinal valueoftheasset, bycasting and students that draws indeed random would understand were the i.i.d.). (so they in a to theparticipants The rules of the game. The rulesof thegamewerepresented asked one-hour sessionbefore theexperiment. the this session questions participants During abouttherulesof thegame.The experimenter all clarifying to answer endeavoured questions while refusing to discuss questionssuch as "How shouldI play?", "WhatshouldI do in
292
thiscircumstance?", to theparticipants thatwe "Is thisa good strategy?", etc. We explained did not answerthesequestions the auction; in ordernotto influence behaviour their during we also announced sessionwherewe thatafter theexperiments we wouldhave a debriefing each participant wouldanalyse thegametogether. of an experimental At thebeginning session, also received a written document therulesof the game (an exampleis displayed in stating and theyasked the game to the participants, A). The experimenter Appendix re-explained to write downthe additional clarification werealso handedforms The participants questions. cash balances,and orderstheyplaced during the openingcall, and to recordtheirtrades, the experimenter inventories the continuous At the end of each replication market. during their final announced whatwas actually thencomputed therealizedvalue.Participants wealth andtheexperimenter checked these computations. on stockmarkets. of coursestaught Incentives. The experiment was runin thecontext in The experimenter wealth obtained thefinal toldthestudents wouldreflect that their they grade theexperimental in thewritten document market. This was announced and also stated verbally andWilliams handed to thestudents to Isaac, Walker (see Appendix A). Thisdeviceis similar Mitzkewitz and Uhlich(1997), and Williams(2003) who also used gradesto (1994), Selten, for thegrade thecourse in their incentivize FortheToulouse students, participants experiments.5 is between between 0 and 20. Thereis a finalexamination, forwhichgradesare typically 6 and 14. Students in four bonuspoints ofthegameearned (to be added participating replications to their final examination thecoursegrade)equal to thesumof their final gradeto determine the wealth outthat at theendofthefour minus 95,000,divided by 3000. It turned replications, and the maximum to minimum bonus in was close number of earned theexperiment 1 points close to 7. FortheLondonBusinessSchool students, thetotalgradeforthecourseis between 0 and 100. The final in class is a presentation examination is graded between 0 and 50, there of 0 and in a number between and the receive addition students 20, graded points equal to the sumoftheir divided and wealth attheendofthefour minus final 95,000 by300. For replications, both examination. We thefinal Toulouse andLondonstudents, tookplacebefore theexperiments to small believethat as on based examination rewarding grades, opposed relatively participants and to deter or amounts of money, is likely to induceserious, behaviour, gambling optimizing not feel did To avoid that attitudes. the into trades students beneficial, arbitrary they influencing we announced didnothavetoplace orders. thedescription ofthetrading during they gamethat 2.3. Descriptive statistics oftheprices setin Mean absolutedeviations. To document theinformational efficiency ourexperimental between transaction we the mean absolute deviation market, compute prices and thetrue as a simpleaverage valueof theasset.Forthecall auction, thismeanis computed acrossreplications itis equal to 118. ofthegame,poolingall thecohorts On average, together. To compute we use the themeanabsolute double-auction deviation forthecontinuous market, of the transactions that transaction the are the where weighted average price, proportion weights occurred ateachprice. Thisis equal to 108.
credit 5. Williams with andobtains arerewarded markets where (2003) analyses points experimental participants similar of publicgoods,Isaac et al. (1994) results to theliterature In their usingcash rewards. analysis experimental conclude(pp. 31-32) "The results of a seriesof (extra-credit, baselineexperiments... are consistent multiple-session) withthe(cash,singlesession)experimental Camerer and results (1988)". Furthermore, reported by Isaac and Walker are thelessonsof theexperimental conclude literature, (1999), drawing Hogarth (p. 8) "In thekindof taskseconomists mostinterested in markets, theoverwhelming in gamesandchoosing in,liketrading amongrisky gambles, bargaining thevariance of responses is that increased incentives do notchangeaverage behaviour finding (although substantially often decreases)".
250
200 ............. 150 100 ... 50 0
(a)
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250 200 150 100 50
(b)
293
v=50 * Opening call * Closingcall
v=240
v=490
0-
v=50
v=240
v=490
m Continuous follows call E Continuous call precedes

FIGURE 1
Panel (a): Mean absolute deviation thevaluesof theassetand call auction between prices.Panel (b): Mean absolute deviation market between thevaluesoftheassetandthecontinuous prices
thecall auctionand themeanabsolutedeviation Figure1 represents during graphically the in thecall continuous absolute deviation double auction. As mean the during expected, auction is is held at the in call auction the first where the treatment, (Panel(a)) greater opening of themarket, thanin thesecondtreatment, is used to close themarket. where thecall auction More surprisingly, is lower in thecontinuous deviation market (Panel (b)), themeanabsolute whenthemarket this market structure with that the oral double auction. This opens suggests couldbe more the when conducive deviation is lower ofprice Also,themeanabsolute discovery. valueoftheassetis equalto240. In this have observed rather all case,indeed, participants strong andunambiguous whenthevalueis which facilitate On theother hand, signals, pricediscovery. 490 or 50, whilethere is somepriceadjustment towards thetrue value,pricesseemto remain somewhat to thecentral asset 240. "anchored" value, possible To document thesepoints transaction and study how informative further, pricesare about thetrue fundamental and theempirical of distribution value,we computed values, prices joint which is depicted value in Figure when the tend to be 2. Thisfigure illustrates that higher prices is 490, and lowerwhenthevalueis 50. Thus,thepricessetin ourexperimental market under when information Forexample, do revealpartof theinformation of thetraders. heterogeneous thecall auction and there is is never to above the actual value of the asset 50, 250, price equal are sevenchancesoutof eight whenthecall auction it is equal to 490. Similarly, that priceis lowerthan orequal to 220,thefrequency is 78%, whilethoseofthe ofthelow valuerealization andhighvaluesare7% and 15%,respectively. The pricessetin ourexperimental intermediary market arenotfully In however.6 the content) (orinformation revealing, particular, diagnosticity of pricesclose to 240 is relatively than220 low. For example, whenthecall priceis greater and lowerthanor equal to 250, thefrequency of the is 17%, that of thelow valuerealization value 52%, and that 31%. Thus,whenthecall price of thehighvaluerealization intermediary fallsinthis interval there is onlyaboutone chanceoutoftwothat theactualvalueoftheassetis 240.7Hence,whenthepriceis in this as is stillsubstantial there uncertainty intermediary range, to theactualvalue.
6. Thiscontrasts be transaction with ourtheoretical ofthegame,discussed above,where pricesshould analysis Thismight stem from fully revealing. imperfect rationality. 7. Thus,whenthevalueis 490, or whenitis 50, theabsolute thevalueandthepricecan be between deviation as illustrated inFigure1. quitelarge,
294
25 (a)
20 . .................................................................................................................................................................................................. 02 15
10
60
90 1 v=50
120
150
180
210
240
270
300
330
360
390
420
450
480
U v=240
o v=490
16 14 12 10 (b)
4
6 2
81
60 80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 380 400 420 440 460 480 M v=50
U v=240
0 v==490 FIGURE2
Panel(a): Frequency ofcall auction of continuous market for different final values.Panel(b): Frequency prices, prices, forthethree values possiblefinal
aboutthetrading behaviour statistics Trading behaviour. Table 1 presents summary of theparticipants. of 11 sharesduring thecall Traders number offer to buyor sell a median auction. to 16% of fact that traders offers these This the offers are filled. reflects place Only In andto sell athigh the continuous which end not executed. market, buyatlowprices prices up offer tobuyorsella median offers arefilled. oftwoshares, and70% ofthese number participants This relatively with the in contrast call execution the ratio reflects auction, that, large finding in thecontinuous at traders at verylow pricesor sell orders auction do notplace buyorders is nature of thetrading veryhighprices.In line withthezero-sum game,themedianprofit and significant is null,somesignificant equal to zero.Whilethemedian gainsareearned profit lossesincurred in thetrading from thefirst -10 for vary game.In thecall market, trading profits to 145 forthethird -79 forthe In thecontinuous market, quartile, varyfrom profits quartile. first ofthetrading to 78 forthethird Nashequilibrium In theabovediscussed quartile, quartile. becauseof heterogeneous thewinner's curseriskarising game,rational agentswill recognize information andcorrespondingly this. tocope with their Hence,in equilibrium, design strategies
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TABLE I
295
statistics acrossthe on thebehaviour inthetrading ofthe Summary fourreplications participants ofthe game.Average game Minimum First quartile Maximum quartile Median Third 34 11 thecall 5 227 0 Quantity posted during thecontinuous 2 4 1 market 0 21 Quantity posted during Execution ratio 34% thecall 16% 3% 0 100% during 89% Execution ratio thecontinuous 70% market 0 50% 100% during 145 the call 0 -1660 -10 2900 Trading profits during thecontinuous 0 market -1879 -79 78 1083 Trading profits during
no lossesareincurred, intheexperimental as shown andno profits earned. Yet,inpractice game, in Table 1,largeprofits we discuss sections In thenext aremade,andsignificant lossesincurred. howpsychological factors can giveriseto suchphenomena. 3. PSYCHOLOGICAL TRAITS AND JUDGEMENTAL BIASES and miscalibration 3.1. Overconfidence Definition. The notion anomalies in order to explain ofoverconfidence has beeninvoked in investor for Several a and behaviour Hilton, 2001, review). (see analyses predictions in financial knownas economicsemphasizea formof overconfidence in one's judgement tothetendency theprecision ofone's information. tooverestimate miscalibration, corresponding In thetheoretical the of private of Daniel et al. about overconfidence (1998) analysis precision information can help explainundermarkets. Odean (1998) in securities and over-reactions showstheoretically In line withthis, that volume. miscalibration can lead to excessive trading Barber andOdean (2000) offer women more than men trade that evidence frequently empirical andattribute totheir this overconfidence. greater Our experimental markets in financial of miscalibration analysisof the consequences thesetheoretical Our focuson miscalibration and fielddata based approaches. complements does notofcourse that we consider suchas thebetter-thanforms ofoverconfidence other imply effect financial andillusion toinfluence ofcontrol tobe lessinteresting orevenlesslikely average behaviour. we do consider fordifferentiating these thatthere However, maybe good grounds Forexample, constructs. tomodelmiscalibration Odean(1998) reliesontwodistinct parameters andthebetter-than-average effect.8 Our measure of miscalibration. While the above-mentioned the studiescan support claim thatcognitive biases influence market behaviour, theydo not assess overconfidence in judgement in financial To directly directly. analysethe consequencesof miscalibration we rely To assess on themeasurement toolsdeveloped markets, psychology. bytheexperimental Fischhoff andPhillips miscalibration, Lichtenstein, (1992), and (1982), Russo andSchoemaker et al. (1999) use a confidence in whichparticipants are askedto interval Klayman procedure makerange the suchthat valuewillfallwithin are90% sure theactual that predictions range they suchthat actual Miscalibrated that are too narrow, specified. participants giveranges typically valuesfalloutside therangemore Russo and Schoemaker Forexample, than10% of thetime.9 42% between that within thestated business hadthecorrect answer (1992) found range managers
8. Indeed, suchas thebetteret al. (2003) offer forms of overconfidence, other evidence that Regner empirical theillusion with miscalibration. ofcontrol, orunrealistic arenotcorrelated effect, than-average optimism, that are too 9. Underconfidence in one's judgement intervals confidence can be obtained designating through wide.This is especially suchmiscalibration et al., 1999). However, to happen whenthetaskis easy (Klayman likely
296
and 62% of thetime.In Klayman answer fellinsidetheparticipants' et al. (1999), thecorrect confidence to elicitcurrency predictions, range43% of thetime.Using the same procedure evenina domain injudgement overconfidence where (1998) found Stephan similarly pronounced theparticipants havehighexpertise. should traders) (Frankfurt currency In linewith etal. (1999),we useda confidence RussoandSchoemaker (1992) andKlayman for10items, toprovide interval tomeasure Thuswe askedparticipants, miscalibration. technique thetwo. an upper answer was between andlower limit suchthat were90% surethecorrect they theexpected The 10questions arelisted inAppendix rational B. Whilefor proportion participants of answers interval is 90%, in our sampletheaverageproportion lyinginsidetheconfidence exhibited of answers ourparticipants insidetheconfidence was 36%. This showsthat interval is very similar intheir ofmiscalibration overconfidence this Notealso that judgement. percentage et In to thosereported we (1992) and Klayman al. (1999). addition, byRusso and Schoemaker interms ofmiscalibration. found no significant differences menandwomen between Specifically, is 37% formen and 34% for thepercentage interval of answers lyinginsidethe confidence women. The t-statistic forthedifference thesetwoaverages between (1.08) is notsignificantly whichsimilarly of miscalibration from in studies different zero.This result is line withother al. foundlittleor no genderdifferences et (1982), Gigerenzer, Hoffrage (e.g. Lichtenstein miscalibration and Kleinbolting and Allwood(2003)).10Because we measure (1991), Jonsson of thesetwocharacteristics from we can examine therespective impacts independently gender, on financial behaviour in a controlled setting. experimental of the participantsIn our econometric analysis,we use the level of miscalibration falloutside thestated answers measured as theproportion ofquestions which thetrue for rangeof meandegree the While as anexplanatory for their and variable behaviour performance. trading the first was minimum inour245 participants the overconfidence was zero, 64%, quartile sample was 100%. Thus was 50%, themedian was 70%, thethird was 80%, andthemaximum quartile thedegree ofoverconfidence acrossindividuals. varies markedly to explain the issues. Using individualmeasuresof miscalibration Psychometric is a stable is appropriate and performance onlyifmiscalibration participants' trading strategies task. kindsof judgemental whichpersists over timeand generalizes across different trait, et al. thisis indeedthecase. Klayman Recent that research has offered evidence psychological interval confidence a subjective (such as thosewe use (1999) showthat questions requesting there in thepresent and stablebias. Theyconclude(p. 240) "Clearly, paper)elicita strong of that in thistask", are strong, in overconfidence stableindividual differences is, theanswers ofeach andthetendency different individuals levelsofoverconfidence, reflect different typically to be stableovertimeand overtasks(see individual to express tends overconfident judgements differences also Jonsson and Allwood,2003). Parker and Fischhoff (2001) analyseindividual Their in cognitive in miscalibration. differences and offer evidence of stableindividual styles, is one of the stableand mostsignificant showsthataccurate calibration psychometric study has also shown research of decisionmakingcompetence. ingredients Finally, psychometric a thatmiscalibration and West(1998) report is distinct Stanovich from intelligence-indeed In oursample, modest andgood calibration. correlation negative intelligence (-0-20) between obtained for42 participants, results by IQ testscoreswerealso available.In line withearlier
with no answer is hardly everobserved on difficult was actually tasks.In oursample, underconfident, onlyone person for outside theconfidence with andtwopersons wereperfectly interval, calibrated, present justone miss.Consequently, injudgement. miscalibration overconfidence can be considered as almost purposes alwaysindicating in in degreeof overconfidence 10. For example,while Gigerenzer et al. (1991) note that"Sex differences showed "Ourstudy, havebeenclaimed that andfolklore", however, knowledge they byboth go on toobserve philosophy no significant differences thesexesin either orcalibration". between overconfidence
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thepsychometric between thisscoreand ourmeasure thecorrelation coefficient of literature, miscalibration is very low (0-01). One wayto assesstheinternal scale is to compute ofa measurement psychometric validity itsCronbach as follows. can be explained ofthis measure Suppose alpha.The intuitive meaning that the It is desirable one variable oritems. basedon theanswers to 10 questions, youmeasure 10 itemspointin thesame direction, One way to checkthat i.e. thatthey be well correlated. wouldbe to measure to the thecorrelation, their acrossparticipants, between averageanswer first five to as the andtheir Thisis referred to thelastfive answer questions average questions. is arbitrary. correlation. Of course, five andlastfive thefirst For split-half questions comparing instead? theanswers andodd questions Cronbach to evenquestions example, whynotcompare formula items. The corresponding correlations is alphais themeanofall split-half among
a = [M/(M- 1)] 1- (EM
Var(xji))Var( xY
whereM is the number are computed across of items, xj is the j-th item,and variances andvaries theitems, a is a synthetic between measure ofthecorrelation participants. Intuitively, between zeroandunity. Iftheitems areperfectly areindependent, correlated a = 0, andifthey itis equal tounity. In ourdata,theCronbach ofoverconfidence ofourmeasure alphacoefficient is 0.58. Thissuggests tend to be positively thedifferent items we use to measure miscalibration thecorrelation is onlymoderately correlated, although strong. ofone's information; intheprecision leadstooverconfidence Hypothesis. Miscalibration i.e. miscalibrated In our conditional agentsunderestimate simpleinformation uncertainty.11 structure thereis littlescope for exaggerating the precisionof one's privatesignal,but miscalibrated can exaggerate their theprecision information oftheir set,including signal agents as wellas market to suchas transaction fail which outcomes, correctly.12 interpret they prices, For example,if the openingpriceis equal or close to 240, miscalibrated traders may theprobability closeto240 are that thetrue As discussed valueis 240.13 above,prices exaggerate unreliable ofunderlying whentheopening indicators valuein ourexperimental market. Indeed, than220 and lowerthanor equal to 250, there is onlyaboutone chanceoutof priceis greater twothat theactualvalueof theassetis 240. We expectmiscalibrated of this unaware traders, Given transaction curse. tobe especially tothewinner's vulnerable largeconditional uncertainty, closeto240,they does willoverconfidently ownsignal that thevalueis 240 iftheir believe prices notruleoutthis off traders. value.Theywilltrade on this belief, byrational risking being picked We arguethat in thetrading theprocess beliefs of overconfident theformation underlying the tothat when theformation ofoverconfident gameis similar answering underlying judgements calibration ofinformational Bothreflect ofthediagnosticity overestimation cues, questionnaire. andunderestimation ofconditional cue in thequestion about a salient Forexample, uncertainty. Martin Luther leader. Overconfident wouldbe that he was a famous King'sage at death political who underestimate leadersaccordingly in ages of famous thevariability respondents political
11. This is in linewith of ambiguity, thetendency thefinding that withintolerance miscalibration is correlated to believe, forexample, that et al. are blackand white shadesof grey rather than various (see, e.g. Lichtenstein things etal. (2003)). (1982),Regner 12. Ouremphasis on theadverse shares similarities with ofunderestimating conditional uncertainty consequences thatof Odean (1998). However, of theprecision of private whilehe emphasizes overestimation signals,we analyse overconfidence intheinformation in ourexperimental market. content oftransaction is publicinformation which prices, 13. In thecontinuous thetransaction market suchconditioning can arisebecausetheagent observes price.In the call auction, at a given wantto trade and supply thenumber of sharesthey schedule agents place demand specifying Thisdemand andStiglitz should reflect theinformation content oftheprice, as shown, (1980). price. e.g.byGrossman
298
overestimate thediagnosticity interofthis narrow confidence cue,andthus excessively provide valsfor their answer in thetrading tothequestion. that we expect Likewise, gamemiscalibrated will similarly overestimate thediagnosticity ofmarket cues,suchas themarket agents opening at or around 240. Correspondingly theconditional of thetrue will underestimate variance they valuein this thetrue 50 or490. theprobability that valueis in fact case,andthus In linewith theabovediscussion, we positthefollowing hypothesis. H1. Miscalibrated morefromthe winner'scurse, and tend to suffer participants earnlowertrading should correspondingly profits. 3.2. Self-monitoring Definition and hypothesis. Whilemiscalibration that has been principally is a concept in has more attention the of received in developed cognitive psychology, concept self-monitoring socialpsychology. Itreflects tosocialcues,andtoadjust one'sbehaviour thedisposition toattend to whatis expected in one's social environment and Gangestad, and (see Snyder 1986). Parker Fischhoff with selfcorrelate should "decision (2001) notethat positively competence making of one's ownactions". has beenapplied awareness monitoring... representing Self-monitoring to management for and Berscheid, (see, forexampleDeBono and Snyder (1985) advertising It has and for resources and Jenkins human (1984) (1993) Matwychuk Snyder management). been shownto correlate Kilduff and with For (1994) Day positively performance. example, showedthat in managerial than careers low aremorelikely to be promoted highself-monitors self-monitors. has effects Kilduff that andBrass(2001) find Mehra, self-monitoring positive high on individual's workplace performance. is a behavioural There anda perception toself-monitoring. Highself-monitors aspect aspect can be thought of as impression is attuned to create whose behaviour strategically managers that In in the of the context a situation. impressions game, gainthem trading advantage given this wouldcorrespond would toa morestrategic andmanipulative behaviour. Highself-monitors to the them their information to makeprofits without place orders enabling revealing private other or market do not their own beliefs reflect also make offers that participants. Theymight butwhich aimtomanipulate andperceptions. others' beliefs signals, In addition, with a projection effect: Monson that evidence consistent is,high (1983) reports others' self-monitors others aremore to interpret to be likethem. likely expect Specifically, they as stemming or behaviour from internal situational constraints rather than revealing dispositions values.By analogy, in themarket arealso other market participants mayassumethat gamethey andtrying themselves do. Accordingly, themarket as they to manipulate behaving strategically atfacevalue,andwillreason about self-monitors should be less likely totakemarket high prices thesignals andstrategies be less likely "tounderestimate that the them. generated Theywillthus extent to which other arecorrelated information" andRabin, with their actions players' (Eyster in contrast avoidthewinner's miscalibrated to highly curse.Specifically, 2003) andthusshould conditional that onprices the closeto240,they willnotso readily agents, jumpto theconclusion valueis 240.14 In linewith theabovediscussion, we positthefollowing hypothesis. H2. Participants in self-monitoring able to tradestrategically shouldbe better higher and suffer lessfrom thewinner's shouldearngreater curse,and correspondingly they trading profits.
14. This impliesthathighself-monitors intervals" social will set wider"confidence forsignalscomingfrom sources itdoes notnecessarily that willdo thesamefornon-social (as in ourexperimental market), they though imply sources (e.g. general knowledge questions).
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evidence that Measurement and psychometric issues. Jenkins (1993) offers suggesting and Gangestad is a stablepersonality trait one's lifespan. Snyder self-monitoring throughout (1986) have developed(and checkedthe psychometric of) a scale to measurethis validity In thepresent in construct. their18-item (presented questionnaire paperwe directly import of questions as thepercentage thedegreeof self-monitoring (out B). We measure Appendix of 18) forwhichtheanswerindicated Whilethemeandegreeof selfhighself-monitoring. inour245-participant was zero,thefirst was was 47%, theminimum quartile monitoring sample was 100%.Thusthedegree was 61%, andthemaximum 33%, themedian 44%, thethird quartile of self-monitoring scoreis 51% formen variesacrossindividuals. The average self-monitoring and 41% forwomen. thesetwoaverages(-4-01) is The t-statistic forthedifference between than women. self-monitors from different menarehigher zero,which significantly suggests In our245-participant thecoefficient of Cronbach's alphafortheself-monitoring sample, the scale is 0.70, which of themeasure. internal at reasonable Furthermore, points consistency scorewas quitelow,as correlation between theindexof self-monitoring andthemiscalibration it equalled0.0073. This suggests that thetwo constructs are quitedistinct. Finallynotethat, between forthe42 participants forwhomwe observed of IQ, thecorrelation a measure IQ and was found tobe equal to -0.11. tobe low,as itwas estimated self-monitoring 4. PSYCHOLOGICAL DETERMINANTS OF TRADING PERFORMANCE In thissection of psychological we testtheabove discussed on theconsequences hypotheses four on trading the traits across replications performance. Tradingoutcomesare averaged of the experiment. To filter out some of the noise in the data,we focuson the deviations in which traded. between thepsychological traits oftheparticipants andthoseofthegroup they of for each the26 trait More precisely we takethefollowing theaverage steps:we compute the or her trait and his cohorts. for between each we the Then, participant, compute difference be can Thus the variable cohort we divide it cohort and average. corresponding bythe average, in terms of difference with the cohort interpreted average. percentage 4.1. Univariate analysis and miscalibration Miscalibration and tradingprofits. To document thelinkbetween of 25% each we broke the into four or composed profit, trading groups quartiles, population is composed of theparticipants, in terms of miscalibration. Thus thefirst and ranked quartile of the least miscalibrated is while the fourth quartile composedof the most participants, ofeachofthefour miscalibrated 3 the quartiles. participants. Figure plots average trading profits Forexample, the the more the their miscalibrated the lower trading profits. Clearly, participants, miscalibrated least of first the 25% the of participants) average profit trading quartile (composed is 131-36,while the corresponding quartile(composedof the most averageforthe fourth thesetwo between miscalibrated forthe difference is -147-67. The t-statistic participants) is 3-17. averages consistent Whiletheaboveresults that miscalibration performance, impedes suggest clearly To withhypothesis of thisresult. speak to this wonder abouttherobustness H1, one might into we downtheobservations theanalysispresented in Figure3, breaking issue, replicated from Toulouse with students three Our was first conducted subsamples. experimental analysis theLondonBusinessSchool. Thenwe replicated from thisanalysiswithstudents University. a new sampleof datafrom after the first we round of the collected Finally, reviewing process, enables one to assess for three the results obtained these participants. Comparing populations 4 outofthat whether theresults obtained for thefirst Toulousesamplearerobust sample. Figure
300
-st miscalibration 2-nd miscalibration tion 3-rd miscalibration ... .... . .. ... .. . .. ... ........ . . .. .... .t .. ...I.. . ..... ..I. .... ... .... .... .... .... .... .... 1 S4-th 5 ... ....... ...... .......... ... . . ................... ...................... quartile quartile quartile ...I 0.o ... ... I I iii.. -100 _
-150................. -200
FIGURE 3
150 10050
eachmiscalibration for quartile Average trading profits 200 150-.. 1 100 00 .............
5 05 ..... .
. . . . . .. . . . . . . . . . . . . . .. . . . .. . . . . . . . . .. . . . . . . . ..
. ................. I............................ .......................... .................................... .......... . ... ....................................... .............................. ......................... l ........................... . . . . . 1 - - - -------.. . ........-. . . .l........... . . .. . . . . . . ................. . . . . . . . .. . . . . . . . . . . . .. . .........
LBS Toulouse, -nd
. ......
-50
Toulouse, -st stmple
-100 -150-200 ---250 M 1-st miscalibration quartile O 3-rd miscalibration quartile 0 2-ndmiscalibration quartile O 4-th miscalibration quartile
4 FIGURE ineachofthethree for eachmiscalibration subsamples Average quartile,
It theaveragetrading forthethree of each miscalibration subsamples. depicts quartile profits is robust across and performance showsthatthenegative miscalibration association between In particular, obtain ineachofthethree theleastmiscalibrated large samples. agents subsamples, of miscalibration on of the Note however that the positive profits. performance impact strength varies for theLBS students. acrosssubsamples. In particular, itis more pronounced As discussed differ Yetitmight not miscalibration does above, significantly acrossgender. affect female could act upon male the and to extent that performance participants differently, their moreor less miscalibrated answer this To viewsof theworldin different ways. question we replicated The in Figure downtheobservations theanalysis 3, breaking bygender. presented results are depicted in Figure5. The figure miscalibration has a more that significant suggests on performance effect below. in menthan We comebackto this itdoes inwomen. point we broke and tradingprofits. As in our analysisof miscalibration, Self-monitoring and thepopulation intofourgroupsor quartiles, each composedof 25% of theparticipants, thistime, is of the in terms of self-monitoring. Thusthefirst ranked, highest quartile composed 6 plots of thelowestself-monitors. is composed whilethefourth self-monitors, Figure quartile tend theaverage of illustrates self-monitors of It that each the four high profits trading quartiles. toearngreater of of the For fourth the quartile (composed profits. example average trading profit the25% lowestself-monitors) for the first is -62-45, whilethecorresponding quartile average ofthehighest for thedifference these between is 53-78.The t-statistic self-monitors) (composed twoaverages is only1-18, is large. within eachquartile becausethevariance
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250 200 150
301
-00
A-st quartile
2-nd qig
3-rd q
-200 M female male Average earnings earnings Average FIGURE 5 of each miscalibration by gender Average earnings quartile, -- -- ---- -40-00 20-0060-00 0.00-4-th
-20-00
----
oring 3-rd
ring 2-ndjl
uatl
oringI -stself-monitoring
-40-00 -6000 -80.00 FIGURE6 ----..
.... .......................
foreach self-monitoring quartile Average trading profits
enhances These resultsprovidesome support that self-monitoring to the hypothesis andperformance, robustness ofthelink between (H2). To assessthe performance self-monitoring we replicated theanalysis, intothree downtheobservation corresponding subsamples, breaking to thefirst round and thesecondToulouse of datacollection in Toulouse, theLBS replication, forthe of each self-monitoring sample.Figure7 depictsthe averagetrading quartile profits three is more and performance The positive association between subsamples. self-monitoring or less upheld. It showsup quitestrongly in theLBS sample.It is less obviousin thesecond Toulousesample, thelowest butwhere where thehighest self-monitors earnthehighest profits self-monitors also earnpositive profits. As discussedabove,theimpact differs acrossgender. on performance of miscalibration Is thisalso thecase forself-monitoring? the analysis thatpointwe replicated To investigate in in Figure6, breaking are depicted The results downtheobservations presented by gender. women. 8. The figure butnotfor for that affects men, Figure suggests self-monitoring profits 4.2. Multivariate analysis The basic regressions. To analysethesepointsfurther we regressed trading profits Wealso variables. across the four two of the onto the (averaged psychological replications game)
302
200-00 150-00 100-00 50-00
0.00-1
-50-00 -
-stsmple
9:
Toulo
sample t-nd i
-200.00
150.001 quartile E 4-thquartile I-stquartile U 2-ndquartile O 3-rd

FIGURE 7
in thethree for each self-monitoring subsamples Average trading profit quartile 200
150 10050
0-OEM
-50
1-st q
artile 3-rd artile quartile

? male earnings Average
FIGURE 8
-100 .............-.............. -150 M Average female earnings
ofeach self-monitoring bygender quartile, Average earnings
in theregressors arecentred, include thegender of theparticipants.15 Because all thevariables is no intercept there intheregression. The first column ofTable2 presents forthebasic specification. theestimates Consistently is of self-monitoring withHI, miscalibration The coefficient reduces significantly profits. in line results are the so. These consistent with but not H2, positive, hypothesis significantly ofourdiscussion ofFigures 3 and6. in whichoverconfidence Winner'scursetraps. In Section3.1, we identified a scenario when in judgement was thefollowing: was likelyto be particularly Our conjecture harmful. thevalue theprobability that transaction arecloseto 240,miscalibrated prices exaggerate agents viewof is 240,when this their ownprivate doesnotruleitout.They placeorders reflecting signal suffer themarket. miscalibrated Theseorders arepicked off rational Thus, agents agents. bymore that from thewinner's we also curse andcorrespondingly incur losses.In Section 3.2, conjectured
the suchas thedegreein which 15. We have also conducted theanalysis additional control variables, including andthey wereenrolled, werenotsignificant, students andthenumber in their cohort. Overallthesevariables ofplayers didnotalter thesign, we decidednotto orsignificance variables. ofthepsychological Hence,forparsimony, magnitude include in thefinal them regressions.
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TABLE 2
303
variables onto and control traits (t statsare inparenthesis) Regression oftrading profits psychological Totaltrading Totaltrading Totaltrading Totaltrading profits profits who for for who (all data) (1-st participants profits profits participants treatment faceda winner's facedatleastone only) never cursetrap winner's cursetrap (1-st (I-st treatment treatment only) only) Miscalibration -618-39 -75-24 -359-32 -361-58 (-0.63) (-4-06) (-3.54) (-3.67) -89-86 292-38 123-33 169.89 Self-monitoring (1-91) (-0.68) (1-57) (1-67) Gender -23-00 23-49 -5-75 11-06 (1 for woman)
(-0.15)
6.52%
(0-20)
(-0.35)
0%
(0-25)
84 98 245 182 Note:Fortheseanalyses we consider toexistwhere thecall priceis close to 240 butthevalueis a winner's cursetrap 50 or490, andtheparticipant's does notruleout240. private signal
R2 Adjusted Number ofobservations
6-47%
16-74%
as discussed cursetraps. should be less likely to fallin suchwinner's Indeed, highself-monitors arelikely at facevalueand to be morestrategic to takemarket andless likely above,they prices thevalueis 240. that close to 240 can onlymeanthat jumpto theconclusion prices To testthesehypotheses, of winner's theoccurrence we needto empirically characterize cursetraps. We define call auction a winner's cursetrap as follows: theopening priceis strictly than220 and lowerthanor equal to 260, butthetruevalue is not240, and yetthe greater The participant's signaldoes notruleout240. We thensplitoursampleintotwosubsamples. first one includesthe98 participants cursetrap.The who wereneverexposedto a winner's secondone includes We runthe cursetrap. the84 participants whofacedat leastone winner's ofprofits on thepsychological inthetwosubsamples. andgender variables regression separately This additional statistical thefirst treatment can be performed samplebecause analysis onlyfor inthesecondtreatment we didnotcollectdataon thesignals observed bytheparticipants.16 The estimates and the are in thelast two columns of Table 2. Whilethemiscalibration whofaced of participants interaction in thesubsample are significant variables self-monitoring In the winner's cursetraps, arenotsignificantly zerointheother different from subsample. they where winner's than twiceas largeas in the cursetraps R2 is more occurred theadjusted sample of Thissuggests oftheimpact that arethemajorchannel thewinner's cursetraps grand sample. thetwopsychological in ourtrading variables on performance game.17 4.3. Gender The regression do not differ estimates in Table 2 indicatethattrading profits presented and across does not affect behaviour Does that that significantly genders. gender imply in our market? performance experimental a discount Barber andOdean(2001) analysed investors trades through placedbyindividual broker. that such found men showed that women and traded more than trading They frequent found did notenhance after costs, Thus, they grossportfolio deducting trading performance.18
16. Thiswasduetothefact inthesecondsetofexperiments, that oneoftheexperimenters, wasnotpresent Pouget, forthe and it was difficult in practice is a natural treatment to collectall thedata.Note however thefirst that setting inthis market. winner's cursetrap to operate, for thebeliefs formed as theopening call auction anchor priceis a natural forthe 17. Forthesakeofcomparison, theresults of theprofit thesecondcolumn ofTable2 presents regression first treatment cursetraps. itaccording to theoccurrence ofwinner's samplewithout splitting 18. Notehowever andKeloharju individual Grinblatt for Finnish statistical traders, that, usinga different approach that is unrelated tothepropensity to sell. (2001) find gender
304

TABLE 3
are inparenthesis) and control variables onto traits (t stats Regression oftrading activity psychological Totalquantity traded Total traded Total Totalquantity Totalquantity by by whonever whofacedat (1-st participants quantity quantity traded participants cursetrap leastone winner's traded treatment faceda winner's curse posted (1-sttreatment (all data) (all data) (1-sttreatment only) only) trap only) -0-61 Miscalibration -9-57 -1.5 -1.50 -1.61 (-0.77) (-0.19) (-1.51) (-1.06) (-0.88) Self0.15 4.81 6-23 1.67 2.75 (1-63) (1-25) (0-07) (1-11) monitoring (1-51) Gender -2-40 -8-73 -1-3 -1.8 -1.58 (1 for woman) (-3-08) (-2-06) (-1.79) (-1-32) (-1-48) R2 Adjusted of Number observations 4.92% 245 2.3% 245 2.6% 182 0% 98 2.52% 84
Note:Fortheseanalyses we consider a winner's thecall priceis close to 240 butthevalue to existwhere cursetrap is 50 or490, andtheparticipant's does notruleout240. signal private
that theperformance that men'slower of women was superior of men.Theyconcluded to that was due to overconfidence. performance inthe tothat To further inourexperimental market observed thebehaviour compare arising in our field of data. We Barber and Odean we determinants the (2001), study activity by trading or demanded consider twopossiblemeasures of shares offered the number of trading activity: on thetwo and thenumber of sharesactually traded. We regress trading by a trader, activity men in Table that as well on as The 3, imply variables, psychological presented gender. estimates, in result This more market than women.19 in the participate replicates our significantly actively The in Table3 estimates the field data Barber and Odean results of (2001). experimental setting and also suggest or self-monitoring is no significant there miscalibration between association measured our method lack of The between miscalibration association (as trading by frequency.20 of confidence and trading has also been foundin fielddata (Glaserand intervals) frequency Weber, 2003). It should in ouranalysis andin Barber be noted that thenature costsdiffers of transaction to each and Odean (2000). In their the researchers are costs transaction by imputed analysis, trade.Hence there costs. In the and is a mechanical linkbetween present trading frequency is no Hencethere transaction costsariseendogenously curseeffects. becauseofwinner's paper, mechanical that linkbetween the same and costs. fact, Thus, namely stylized trading frequency mentrade morethan costs thus transaction and has for different trading women, consequences in their andours. performance analysis a Whilewe find ortrading no direct on miscalibration ofgender performance, consequence exist. more and between variables, may complex relationship gender performance psychological 5 and8 suggest for women. that notfor affect variables men, Figures performance psychological To analyse this variables issuefurther, we rantheregression onto oftrading profits psychological for maleandfemale The estimates areinTable4. separately participants. The firstcolumn presentsthe estimatesfor the basic specification. Miscalibration a t-statistic reduces the is with of estimate men -465-12, (thepoint significantly trading profits
19. For completeness, we also ran theregression, forthefirst as in theanalysisof trading separately profits, and splitting thesampleaccording The signsof thecoefficient of winner's cursetraps. to theoccurrence treatment, estimates areunchanged acrossspecifications. 20. We also ran theregression In bothcases we foundthat forthe male and femalesubsamples. separately overconfidence did notincrease related to trading is notsignificantly While self-monitoring activity trading activity. in themalesample, itsignificantly increases itin thefemale sample.
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TABLE 4
305
onto traits and control variables (t statsare Regression oftrading separately profits psychological formenand women inparenthesis) Totaltrading Totaltrading Totaltrading Totaltrading Totaltrading for for (2-nd profits profits profits profits profits who treatment (all data) (1-sttreatment participants participants never faceda whofacedat only) only) winner's curse leastone winner's curse trap (1-sttreatment trap (1-sttreatment only) only) Men Women Men Women Men Women Men Women Men Women Miscal. -465-12 -149-47 -465-54 -155-39 -631-43 -87-91 -50-78 -108-09 -776.99 -204-90 (-3-61) (-1.06) (-3-70) (-1.49) (-0-30) (-0.73) (-3-31) (-1.38) (-2-2) (-0.34) Self184-68 -32-57 -73-52 -140-95 390-59 -64-80 251-29 -107-94 -103-09 55-36 monit. (1-71) (-0.34) (2-07) (-0.32) (1-94) (-0.80) (0-41) (-0.44) (-0.67) (-0-6) Adj. R2 9.44% Number ofobs. 151 0.34% 9.58% 0.85% 9-8% 0 0 0 23-12% 0
64 34 59 94 123 25 59 28 35 Note:Fortheseanalyses we consider a winner's cursetrap to existwhere thecall priceis close to 240 butthevalueis 50 or490, andtheparticipant's private signaldoes notruleout240.
of -3-7), whilethepositive is notsignificant of self-monitoring on profits (thepoint impact estimate is 184-68,witha t-statistic in the femalesubsample obtained of 1-7). The results are quite different: are much smaller the coefficients of miscalibration and self-monitoring are -1-49 and and bothare insignificant (-149-47 and -32-56, respectively), (thet-statistics forthe obtained The twomiddlecolumns theresults of thetablepresent -0-34, respectively). first treatment In bothcases, miscalibration and the secondtreatment subsample subsample. hurts thedifferent of Table4 document The lasttwocolumns men,notwomen.21 significantly reaction of menand women of male to winner's characteristics The psychological cursetraps. twhich is reflected influence their curse reaction towinner's participants byhigh strongly traps, statistics for the thepsychological R2. In andrelatively contrast, trading variables, largeadjusted is notsignificantly affected offemale winner's curse performance bythe participants facing traps variables. psychological To summarize: ofmiscalibration, whilemenandwomen differ in terms do notsignificantly their to different act on their and this leads to miscalibrated beliefs is different, patterns propensity oftrading performance. 4.4. Intelligence For 42 participants were from the Mastersin Financeat ToulouseUniversity, IQ measures available wereusedto select Thisoffers an opportunity thestudents for theprogramme). (as they to study whether we analyse, there are linksbetween characteristics thepsychological gender, suchas and IQ. For example, whether one can study abilities, trading performance, cognitive inthegamebecausethey To conduct this matter for area proxy calibration, intelligence. general we measures. and onto characteristics IQ Since, analysis, regressed trading profits psychological as shown theregressions in thegame,we estimated behavedifferently above,menand women forthetwogenders. The results are in Table 5. Even after IQ measures, separately including
21. Oneofthereasons the treatment theeffect ofpsychological is weaker in thesecond variables data, pooling why twogenders, inthat inthesubsample than the ofwomen (56%) is larger corresponding maybe that, subsample, proportion to thefirst treatment (35%).
306

TABLE 5 ontomiscalibration, and oftrading Regression self-monitoring, profits are inparenthesis) IQ formenand women (t stats Male participants Femaleparticipants Miscalibration -852-12 -70-89 (-0.24) (-1.98) 753-35 434-53 Self-monitoring (1-53) (1-2) -82-44 137-90 IQ (1-69) (-1.01) R2 Adjusted Number ofobservations 19-79% 26 7% 16
Thispoints miscalibration women. for butnotfor reduces men, significantly trading performance tothe for male robustness ofourresults andthe miscalibration role performance played by unique in theexperimental that financial in Table 5 suggest market. The estimates IQ does notimpact is significant and rather theperformance of men.For women, thepointestimate significantly of and the the t-stat enhance that large, performance (weakly)suggests higher intelligence may female to men and women We find the obtained for be of results participants. complex pattern andofsimilar KruseandSchubert tothoseobtained (2002) in intriguing, complexity byGysler, their and risk aversion. of in differences miscalibration, experimental study gender ambiguity, This suggests could shedinteresting that further research and moresystematic datacollection on theissueofgender, andeconomic characteristics, light performance. psychological 4.5. Call and continuous markets Ourexperimental order market. The market limit includes a call batchauction anda continuous datausedfor market an thefirst version ofthis in the context of was collected experimental paper We chose withan opening call auction market. witha continuous andthen starting continuing thismarket in the structure becauseit is similar to that of many of themajorstockexchanges world: Eurexin Frankfurt, in Paris, Euronext Brussels andAmsterdam, or SETS in London. The estimates of theregression variables and gender of trading ontopsychological profits for this first The coefficients ofthe in of Table 6. treatment are the first two columns experimental and variables are in call and smaller and the market, psychological insignificant large significant in thecontinuous market. Twoeffects couldcontribute to this difference. of the market, is at theopening treatment (i) The call auctionin the first experimental wheretheuncertainty of aboutthevalue of theassetis maximal. It could be thattheimpact on is traits when there more is psychological uncertainty. performancestronger trading In market. involves thanthecontinuous different (ii) The call market thought processes theformer, the others and about traders haveto reasonabouttheorder of strategies placement thedetermination curves. The oftransaction of supply and demand pricesby theconfrontation which continuous market is muchsimpler. aboutthetransaction Thereis no uncertainty price, is simply thepriceof thelimit whoplacedit,and observed order chosenbytheparticipant by theothers. Whenthey do nothave decideto initiate a limit a trade, order, byhitting participants to imagine theorders that havebeenplacedbytheothers; them can observe Thus, directly. they thecall auction Thiscouldbe why is cognitively market. moredemanding than thecontinuous variables matter in theformer inthelatter. more than psychological To testwhich we collected of thesetwoeffects we obtained, was at therootof theresults newdataina second continuous auction with a where the market treatment, experimental opened
BIAIS ETAL.

TABLE 6
307
market structures invarious onto traits variables and control are (t stats Regression oftrading profits psychological inparenthesis) (2-ndtreatment only) (1-sttreatment Trading profits Trading profits only) call auction Closingcall auction Opening Opening Ensuing market continuous continuous market Miscalibration -115-15 -245-55 -76-33 -281.94 (-1.76) (-1.32) (-3-09) (-1.24) 5-64 197-41 -25-04 Self-monitoring -1.02 (-0.01) (2-19) (-0.41) (0-12) Gender -21-01 -16-96 20-06 -9-09 woman) (0-40) (-0.27) (-1.16) (-0.59) (1 for ofsignals -437-67 353-14 Proportion equal to"not240" (-1.96) (2-34) R2 Adjusted Number ofobservations 7-72% 182 1-42% 182 1.60% 63 1.53% 63
andclosedwith observed markets Ifthedifference a call auction. thecall andcontinuous between in thefirst treatment reflected thesequencing ofthesemechanisms (i)), we should (explanation observea reversal shouldhave of theresults variables in thesecondtreatment: psychological call than intheclosing andmore intheopening market coefficients continuous greater significant auction. Ifthedifference between thetwomarkets incognitive demands was duetothedifference as in thefirst one. in thesecondtreatment obtain similar results (ii)), we should (explanation The four on of trading of Table 6 presents columns theestimates of theregression profits ourtwopsychological market variables in thefour andon gender call, opening settings: possible call. continuous continuous andclosing market, market, ensuing opening in thesecondtreatment, Thereis no strong reversal oftheresults, i.e. itis notthecase that, and not in theclosingcall variables in theopening market matter continuous psychological auction. is onlyslightly Thepoint inthecall auction estimate ofthecoefficient ofoverconfidence lower inthefirst treatment (inabsolute (-281-94). Thepoint value)inthesecond (-245-55) than estimate ofthecoefficient market is larger ofoverconfidence inthecontinuous value) (inabsolute inthesecond inthecall than lower treatment inthefirst (- 115-15)than (-76.33), butitremains auction. be due to the can in part Lowersignificance of theestimates in thesecondtreatment smaller number ofobservations. inthe To summarize: is greater variables ourresults that theimpact ofpsychological suggest call auction of the it is The because a morecomplex mechanism. impact psychological trading has notbeen in thecall auction variables is magnified at theopening, becausepricediscovery achieved anduncertainty is large. 5. CONCLUSION forfinancial This paperexperimentally variables of psychological theconsequences analysed inexperstudied behaviour. We focused on twopsychological traits which havebeenextensively overconfiimental of and social-personality a form is Miscalibration judgemental psychology. is a denceconsisting in overestimation of theprecision of one's information. Self-monitoring these form we two ofattentiveness measured tosocialcues.Usingpsychological questionnaires, financial marvariables in an experimental for245 participants andalso observe their behaviour the true ket.In thisexperimental and Sunder Plott similar to that market, (1988), analysed by value of theassetcan be high(490), medium receive heteroge(240), or low (50) and traders neousprivate values. which toruleoutone ofthethree enablethem signals
308
We formulated the two hypotheses: miscalibrated we expected traders, underestimating conditional to thewinner's vulnerable curse.We oftheassetvalue,to be especially uncertainty also expected results. andachieve self-monitors tobehave high superior Empirically, strategically we foundthatmiscalibration enhances reducesand self-monitoring We trading performance. identified situations wherewinner's severe.These arise curseeffects shouldbe particularly whenthepriceis close to 240, butthetruevalue is not.In suchcircumstances, traders with cursetrapif theyoverconfidently private signal"not50" or "not490" will fallin a winner's believethatthetruevalue is 240. We find obtainlowerprofits that miscalibrated participants in suchcircumstances. curse In contrast, succeedin avoiding thesewinner's highself-monitors consistent withthehypothesis facilitates thatself-monitoring traps, reasoning. gametheoretic Ourexperiment offers an opportunity between to study therelationships gender, psychological and trading to be moremiscalibrated thanwomen. Men are notfound variables, performance. On theother affect theprofits do notsignificantly of characteristics hand,whilepsychological female of men. the reduces performance miscalibration participants, significantly Bothpsychologists andBrown, 1988)andeconomists (e.g.BenabouandTirole, (e.g.Taylor have and optimism that inflated self-esteem illusions such as 2003) maylead argued positive individuals them to attain to work harder and better for outcomes, example through motivating realism when the results that our However, experimental persist suggest goinggetstough.22 can produce in whichagents and where morepositive in market outcomes situations compete and in for more than motivation and count perspicacity accuracy judgement persistence. may This is in line withpsychological studieswhichshow thatrealismfacilitates performance whenaccuracy effort ofjudgement successful investment is important forselecting strategies and been obtained in have economic domains. Similar 2002). (Forsterling Morgenstern, findings For example, illusion Fenton Willman measured the Soane and Nicholson, (1998) O'Creevy, of control of traders banks their to in investment London-based tendency through working in overestimate screen fact their of a on a which to the movement influence they point ability did notcontrol. of illusionof control wereindeed that traders Theyfound proneto thisform of thenegative effect of demonstration deskmanagers to earnless. A similar judgedby their inflated from Camerer and self-assessments on economic comes Lovallo's (1999) performance one's chancesof successon a newventure that experimental finding beingled to overestimate relative to others leads to excessive losses.Finally, market and financial data, usingfield entry Landierand Thesmar have a that firms show started (2003) (who by optimistic entrepreneurs to in same to of success relative others the overestimate their firm's chances higher tendency businesscategory) In sum,themarkets tendto growless, die sooner, and be less profitable. studied seemtopunish-notreward-miscalibration illusions. andpositive Our methodology, traits and correlating whichinvolves measuring psychological directly them with on theimpact ofpsychological economic couldprove useful to shedlight behaviour, in various variables in future work to economic itcouldbe interesting situations. Forexample, will and how influence economic behaviour. forms of overconfidence when, study why, particular For example,Glaser and Weber(2003) findthatfrequency in theirfielddata is of trading ofthebetter-than-average In addition, we butnot miscalibration. effect predicted bymeasures by that in our market are self-monitors more successful because were suggest they high experimental better abletoengage ingame-theoretic toanticipate thelink between andinparticular reasoning, thesignals oftheother the toinvestigate further andtheir actions. It wouldbe interesting players relation between to estimate thecorrelation between of players and theability self-monitoring theactions of others andtheir andRabin information. as shown Indeed, theoretically byEyster ofthis in adverse-selection curseandtrade correlation leadstowinner's (2003),underestimation
22. See also Aspinwall andTaylor andHolmes(1997). (1992) andMurray
BIAIS ET AL.
309
avenueofresearch where conventional An interesting no trade. would settings analysis predicts also be to consider another other traits thanthoseanalysedin the present Finally, paper.23 moderate or exacerbate direction structures wouldbe to study how different market promising the toanswer these ofpsychological studies characteristics.24 questions consequences Systematic couldhelpyielda bodyofknowledge basedon classicalmechanism able to complement design from behavioural in thespirit ofCamerer (1997). insights gametheory, APPENDIX A. INSTRUCTIONS TO THE PARTICIPANTS IN THE TRADING GAME
In thistrading ofthegamearebelow.Ifyou The instructions tobuyandsell shares. gameyouwillhavetheopportunity follow them andmakegooddecisions for final ofpoints amount your grade. carefully youcan wina considerable You will play4 replications of thetrading of each replication you will receive25,000 game.At thebeginning francs and4 shares. thegameyouwillhavetheopportunity to buyor sell theshares. to place orders (You can During sellmore shares thevalueof than salesareallowed.)Attheendofeachreplication, youown,i.e. short youwillcompute final wealth, your equal tothesumof: initial cash:25,000F, your minus thecostofyour share purchases, from share sales, plustheproceeds your valueofyour plusthefinal portfolio. The final valueofyour is equal tothenumber ofshares portfolio multiplied youownat theendofthereplication, valueof each share.The final is drawn valueof theshares, at theend of each replication, (and by thefinal randomly Forexample, ifyour from theprevious one third. Itcan be 490,240, or50,with draws). independently equalprobability: final is: 25,000 was thepurchase ofoneshare is 240,your wealth atprice valueoftheshares 200,andthefinal onlytrade - 200 + 5 * 240. Sinceyoucan sell moreshares heldat a negative number ofshares than youown,youcanendupwith theendofthereplication. Forexample, valueoftheshares is 50, your final ifyousold6 shares at 100 each andthefinal wealth is: 25,000+ 600 - 2 * 50, given that more than youowned. youhavesold2 shares At thebeginning of each replication don'trevealit to the information (keepit secret, youwill receivea private If thevalueof theshares knowit is not50. If the is 490, halftheplayers knowitis not240, whiletheothers others!). valueoftheshares is 240,half know itis not50. Ifthevalueoftheshares know theothers theplayers itis not490, while is 50, half theplayers knowitis not240,whiletheothers knowitis not490. Each replication ofthetrading twophases: gameincludes them on a piece of to buyor sell (up to 10 sharesat each price),by writing First, you can place limitorders These orders are then theopening intosupply and demand crossedto determine curves, paper. price,in a aggregated call auction. The opening in class. Thisprice, butnottheorders, as explained volume, priceis setto maximize trading is announced ofyour to theplayers. After thisannouncement, execution telling youwhich publicly reports, youreceive orders arefilled. All limit All sellorders at this priceareexecuted price. placedat pricesbeloworequal to theopening limit are orders at theopening aboveorequal tothispriceareexecuted buyorders placedatprices price.Theremaining notexecuted. Forsimplicity, call. cancelled after theopening areautomatically they Secondthere to: is a continuous which lasts7 min, which market, youwillhavetheopportunity during theoffers announce offers to sell orbuy, which I willwrite on theboard(to makelifeeasierforme whenI write on theboard, areall forone share butyoucan placemany offers), they only, announce that andwhich havenotbeenexecuted totrade with one oftheoffers availableon theboard, youdesire offers whenthey havenotbeenexecuted yet;cancelorrevise your yet. of After the4 replications, thegame.To obtain thenumber thesumofyour final wealth during youwillcompute bonuspoints to be then thissum,anddividetheresult addedto your subtract 95,000from by gradeat theexamination, 3000.
23. In thecontext ofthepresent biasesas theconfirmation, tomeasure suchcognitive we tried availability, paper, andrepresentativeness biases.Unfortunately, ourmeasures ofthese biaseshadinsufficient (i.e. they validity psychometric weretoonoisy), tobe included andSunder inthepresent Camerer (1995) offer (1987) andAnderson interesting analysis. oftheconsequences in further tobuildon their oftherepresentativeness bias. It couldbe interesting, research, analyses or on thetheoretical of confirmatory bias offered (2001) approach, analysis by Rabinand Schrag(1999). Hirshleifer discusses several financial biasesin relation with markets. psychological canmitigate 24. Camerer, environments ofhowmarket aninteresting Loewenstein andWeber (1989) offer analysis theadverse ofthehindsight context. decision biasrelative toan individual consequences making
310
REVIEW OF ECONOMIC STUDIES APPENDIX B. MEASURING THE PSYCHOLOGICAL TRAITS
Miscalibration Low Martin Luther King'sage at death. oftheNile River (in miles). Length Number ofcountries arememthat bersofOPEC. Number of books in the Old Testament. Weightof an emptyBoeing 747 (kgs). Yearin which J.S.Bach was born. Gestation period (in days) of an Asianelephant. Diameter ofthemoon(in miles). Airdistance from toTokyo. London in theoceans Deepestknown point (in ft.). and Gangestad, 1986) Self-monitoring (Snyder Foreach ofthefollowing and0 otherwise. Ourmeasure of we code 1 iftheanswer reflects self-monitoring, questions, a 1. thedegree to which theparticipant is a self-monitor codedwith is thepercentage of answers High
True
I find ithard toimitate thebehaviour ofother people. will Atparties andsocialgatherings, I do notattempt that others to do or saythings like. I can onlyargue I already for ideaswhich believe. I can make impromptu speecheseven on topicsabout whichI have almostno information. I guessI puton a showto impress orentertain others. I wouldprobably makea goodactor. In a group ofpeopleI am rarely thecentre ofattention. In different I often different situations andwith different actlikevery persons. people, I am notparticularly other goodat making peoplelikeme. I appear I'm notalwaystheperson tobe. I wouldnotchange topleasesomeone in order (or thewayI do things) myopinions orwintheir favour. I haveconsidered beingan entertainer. I havenever beengoodat gameslikecharades orimprovisations. I havetrouble tosuit different situations. mybehaviour changing peopleanddifferent At a party I letothers keepthe jokes andstories going. I feela bitawkward in publicanddo notshowup quiteas wellas I should. I can lookanyone in theeyesandtella lie with a straight face. I maydeceivepeoplebybeingfriendly whenI really dislike them.
False
BIAIS ETAL.
311
Biais is at ToulouseUniversity are at the Acknowledgements. (IDEI-CRG-GREMAQ),Hiltonand Mazurier Social Psychology Robinson at ToulouseUniversity, and Pougetis at theFinanceDepartment, College Department ofBusiness, andthen State ofthis when was atToulouse Part at University Georgia University. paperwas written Pouget theCSEF at SalernoUniversity. MarkArmstrong, andthereferees, We benefited from comments helpful by theeditor, as wellas seminar at SalernoUniversity, theLeeds BusinessSchool,theLondonSchoolofEconomics, the participants LondonBusinessSchool,MIT, theUniversity and at thePsychology ofWiirzburg of Munich, and theUniversity and Economicsconference in Edinburgh, the2001 Western in Brussels, theFinancial Association meetings Management FinanceAssociation theCEPR EuropeanSummer thePsychology in Mannheim, and Financeconference Meetings, in Financial andPoliticalEconomy Markets at Gerzensee, on Markets and the12-th WZB Conference in Symposium Berlin. We also thank MarcoPagano, Joshua Peter RachelCroson, Baruch Bossaerts, Fischhoff, Klayman, NigelHarvey, Andrew RobbieSutton, Jean VesnaPrasnikar, SteveRoss,Jim MarkSnyder, Tirole, Parker, Sonnemans, Shanteau, Joep andMartin under thetitle Weber forhelpful comments anddiscussions. An earlier version ofthispaperwas circulated from theRobinson research andtrading behaviour". "Psychological support dispositions Pouget acknowledges gratefully at Georgia StateUniversity. CollegeofBusiness REFERENCES in D. Kahneman, ofProbability on theTraining ALPERT,M. andRAIFFA,H. (1982), "A Progress Report Assessors", P. SlovicandA. Tversky U.K. andNew Heuristics and Biases (Cambridge, UnderUncertainty: (eds.) Judgement NY: Cambridge York, Press). University An Empirical and StockReturns: Mechanisms AMIHUD, Y. and MENDELSON, H. (1987), "Trading Investigation'" Journal 42, 533-555. ofFinance, Evidencefrom theJapanese Stock and Trading: AMIHUD, Y. and MENDELSON, H. 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ReviewofEconomic Studies (2005) 72, 287-312 ? 2005 TheReviewofEconomicStudiesLimited

Overconfidence, Judgemental andTrading Self-Monitoring, in an Experimental Performance Market Financial

REVIEW OF ECONOMIC STUDIES

OVERCONFIDENCE AND PERFORMANCE

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200 ............. 150 100 ... 50 0

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v=50 * Opening call * Closingcall

m Continuous follows call E Continuous call precedes

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OVERCONFIDENCE AND PERFORMANCE

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OVERCONFIDENCE AND PERFORMANCE

a = [M/(M- 1)] 1- (EM

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Toulouse, -st stmple

4 FIGURE ineachofthethree for eachmiscalibration subsamples Average quartile,

OVERCONFIDENCE AND PERFORMANCE

-40-00 -6000 -80.00 FIGURE6 ----..

foreach self-monitoring quartile Average trading profits

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150.001 quartile E 4-thquartile I-stquartile U 2-ndquartile O 3-rd

artile 3-rd artile quartile

-100 .............-.............. -150 M Average female earnings

ofeach self-monitoring bygender quartile, Average earnings

OVERCONFIDENCE AND PERFORMANCE

R2 Adjusted Number ofobservations

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OVERCONFIDENCE AND PERFORMANCE

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OVERCONFIDENCE AND PERFORMANCE

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REVIEW OF ECONOMIC STUDIES APPENDIX B. MEASURING THE PSYCHOLOGICAL TRAITS

OVERCONFIDENCE AND PERFORMANCE

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