Does expertise influence the impact of overconfidence on judgment, valuation and investment decision?

Empirical research documents that overconfidence has a strong impact on investment decision. In this experimental study using a within-subject design and an asset allocation problem, we detail this relationship by introducing a stage of judgment (initial knowledge about the assets to invest in) and valuation (forecasts to be made) before the investment decision. We also examine the role of expertise by comparing a group of bankers (20 loan officers) and a group of students (64), control in the role of risk aversion, and implement different measures of overconfidence (miscalibration in two formats – the BTA effect and the illusion of control). Our results show that no differences were observed between bankers and students in the degree of overconfidence. However, overconfidence seems to determine decision-making in a different way across the two groups. Concerning students, we observed that overconfidence influenced general tasks such as global knowledge of the assets but when it came to investing, risk aversion had a major effect. In contrast, bankers were strongly influenced by their overconfidence. For them, it mainly affected specific tasks (valuation and investment choices) but, surprisingly, risk aversion had no effect on investment decision. Our results suggest that introducing an assessment stage in the decision process is an aid to understanding the differences between experts and novices.

► We analyze the overconfidence impact on investment trough a judgment and a valuation.
► We examine the role of expertise by comparing bankers and students.
► The overconfidence is similar between bankers and students, whatever the measures.
► Bankers are more influenced by valuation and students by initial and general judgment.
► The valuation has a mediating role between overconfidence and investment for bankers.