Ambiguity and Overconfidence

Posted: 26 Jun 2013

See all articles by Menachem Brenner

Menachem Brenner

New York University (NYU) - Department of Finance

Yehuda (Yud) Izhakian

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Orly Sade

Hebrew University of Jerusalem - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: November 2011

Abstract

There are two phenomena in behavioral finance and economics which are seemingly unrelated and have been studied separately; overconfidence and ambiguity aversion. In this paper we are trying to link these two phenomena providing a theoretical foundation supported by evidence from an experimental study. We derive a model, based on the max-min ambiguity framework that links overconfidence to ambiguity aversion. In the experimental study we find that overconfidence is decreasing in ambiguity, as predicted by our model.

Suggested Citation

Brenner, Menachem and Izhakian, Yehuda (Yud) and Sade, Orly, Ambiguity and Overconfidence (November 2011). NYU Working Paper No. 2451/31332, Available at SSRN: https://ssrn.com/abstract=2284652

Menachem Brenner (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0323 (Phone)
212-995-4233 (Fax)

Yehuda (Yud) Izhakian

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

HOME PAGE: http://people.stern.nyu.edu/yizhakia/

Orly Sade

Hebrew University of Jerusalem - Department of Finance ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 588 3227 (Phone)

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