2015 Conference
October 15–16, 2015
Orlando, FL
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Overconfidence, Optimism, and Risk Management Decisions
Keywords: 5 words maximum
Overconfidence, Insurance, Laboratory experiment, Uncertainty
Very short description for use in the program to help attendees understand more than a title can describe
We elicit risk perception information from experiment participants prior to their participation in an incentivised probability estimation and insurance tastk. We distinguish between an individual’s optimism bias (the tendency to assign higher subjective probabilities to favorable outcomes) and overconfidence bias (the tendency to overestimate one’s own actual performance after adjusting for the individual’s optimism bias). Although participants are not significantly optimistic in our experiment, they do exhibit overconfidence by overestimating their performance relative to others. In a controlled risk management task, after adjusting overconfidence for general optimism bias, we find that the optimistic underinsure but the overconfident do not.