Anxiety, overconfidence, and excessive risk taking

Arbeitspapier

We provide a preference-based rationale for endogenous overconfidence. Horizon-dependent risk aversion, combined with a possibility to forget, can generate overconfidence and excessive risk taking in equilibrium. An "anxiety prone" agent, who is more risk-averse to imminent than to distant risks, has an incentive to distort her future self's beliefs toward underestimating risk. Such self-deception can be achieved even if the future self is aware of the attempted distortion. We relate our results to the literature on empirically observed overconfidence and excessive risk taking in several domains of financial and other types of decision making.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 711

Classification and Topics

• Classification: Wirtschaft ; Relation of Economics to Other Disciplines ; Criteria for Decision-Making under Risk and Uncertainty ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Expectations; Speculations
• Subject: overconfidence ; dynamic consistency ; biases ; deception ; risk taking

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eisenbach, Thomas M. ; Schmalz, Martin C.
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/120836
• Last update: 10.03.2025, 11:44 AM CET