Overconfidence, experience, and professionalism: An experimental study

This paper presents an online-experiment on overconfidence in the context of financial markets. Our subject pool consists of institutional investors, investment advisors and individual investors, all of them being registered users of a large online platform for market sentiment data. Due to their registration, several socioeconomic characteristics of participants can be controlled for in our analysis. It turns out that there are stable differences in overconfidence between the three investor groups. Moreover, investment experience and age have a significant impact on the degree of overconfidence which goes surprisingly in opposite direction. We argue that these results have important implications for studies analyzing the impact of experience on behavior in (financial) markets.

► There exist systematic differences between professionals and lay men.
► These differences persist even if we control for experience.
► Investment advisors and professional investors behave quite differently.
► Experience and age have contrary effects although they are correlated.
► Analyzing experience by comparing younger and older subjects is problematic.