Overconfidence: Measuring Overconfidence in Financial Decision Making

Many studies have shown that overconfidence can explain the irrational behavior of investors in financial markets. However, Overconfidence isn`t just a number that can be measured easily. Many psychological aspects are considered when choosing a measurement way. In this work, the two most common ways of measurement of overconfidence will be compared: through two-set questions, and through the elicitation of confidence intervals. Some other unconventional measurement methods are also presented. Various studies have also criticized the common measurement methods, so that is also going to be mentioned in the book.