Diploma Thesis from the year 2007 in the subject Business economics
- Business Management, Corporate Governance, grade: 1,3, Otto
Beisheim School of Management Vallendar, 58 entries in the
bibliography, language: English, abstract: This paper aims to give
an overview of two related human traits that have attracted
particularly wide interest, namely overconfidence and overoptimism.
The two are closely related to each other, and often used
synonymously. Broadly speaking, overconfidence results in
underestimation of future risks, e.g. the riskiness of future cash
flows, whilst overoptimism leads to an overestimation of future
positive outcomes, e.g. the future returns of a company. Besides,
the paper wants to deduct suggestions for further research, by
systematically identifying uncovered topics in existing literature.
This paper also provides a closer look at the empirical methods
normally applied in field studies. Although the phenomena are
intuitively understandable, empirical researchstill presents itself
as a mosaic of fragmented testing rather than a coherent framework.
One may assume that this is mainly caused by the difficult
measurability of overconfidence and overoptimism: On the one hand,
the decision maker, convinced of his own rationality, contributes
zero overconfidence or overoptimism to his actions. On the other
hand, even a neutral observer cannot specify any degree of
biasedness a priori, as stochastic outcomes per definition do not
allow for perfect prediction. Therefore, scientists frequently rely
on proxy variables that at least allow for measuring a group's
average overoptimism or overconfidence. Furthermore, this paper
empirically examines several considerations regarding existing
research and measurement methods. It particularly aims to connect
biasedness with certain personal and economic characteristics,
namely participants' gender, industry affiliation, company life
cycle, success and risk preferences. Additionally, different
methods are e
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