A Critical Examination of Overconfidence in the Financial Sector

This book focuses on the aspect of irrationality of human decision making, more specifically gives an overview of the phenomenon that is termed overconfidence in the study of Psychology. The book has the following structure. In the beginning the basic tenets of traditional economics are explained, starting from the basic assumptions of the homo economicus. After that the reader will find a chapter on behavioral economics which is the new field of studies of which overconfidence is a sub-field. In the section about behavioral economics the reader will have the chance to understand how this new field differs from traditional economics. The fourth chapter will introduce overconfidence in detail to the reader with many examples from the labs and the field. The chapter after will discuss in depth the findings of overconfidence in the financial sector. Lastly the paper will conclude with a detailed explanation of the certain measurement types related to overconfidence, the downsides of these measurement types and some suggestions on how to improve the measurement of overconfidence.