Overconfidence, risk perception and the risk-taking behavior of finance professionals

•Professionals are overconfident both in the general and financial domains.•The risk professionals are willing to take on is positively influenced by overconfidence.•Forecasted standard deviations have no strong influence on the risk-taking behavior of professionals.•Professionals are unable to make consistent predictions about future stock prices.

This paper highlights the role played by overconfidence and risk perception in the risk-taking behaviors of finance professionals. We interviewed 64 high-level professionals and demonstrate that they are overconfident in both the general and the financial domains. Using a recent measure proposed by Glaser et al. (2013), we indicate that respondents are overconfident in forecasting future stock prices. We demonstrate that the risk they are willing to assume is positively influenced by overconfidence and optimism and negatively influenced by risk perception. However, the stock return volatility anticipated is, in most cases, an insignificant determinant of the risk that professionals are ready to assume.