Kaustia wins Emerald 2013 Awards for Excellence - Outstanding Paper Award
26.06.2013
Markku Kaustia and Milla Perttula won the Emerald 2013 Award for Excellence – Outstanding Paper Award for their article “Overconfidence and debiasing in the financial industry” published in Review of Behavioral Finance.
Every year Emerald invites each journal’s Editorial Team to nominate what they believe has been that title’s Outstanding Paper and up to three Highly Commended Papers from the previous year (2012). Further information regarding the Awards for Excellence can be found at the following site: www.emeraldinsight.com/literati.
Abstract of the awarded article
Purpose – The purpose of this paper is to measure overconfidence amongst finance professionals in domain relevant knowledge, and test for the impact of different debiasing methods.
Design/methodology/approach – The approach used was survey field experiments with varying debiasing attempts.
Findings – The subjects were overconfident in terms of probability calibration, better-than-average beliefs, and unfounded confidence. Debiasing attempts yielded mixed results. Explicit written warnings reduced better-than-average-type of overconfidence. There was a further strong effect from attending lectures on investor psychology covering relevant examples. In contrast, there was only
limited success in reducing miscalibration in probability assessments.
Research limitations/implications – Different types of overconfidence are distinct and respond differentially to debiasing. Future research on debiasing professional judgment should concentrate on testing in-depth/personally engaging methods.
Practical implications – It is important for bankers to acknowledge the dangers of overconfidence. Correct confidence interval calibration is needed in order to have a sense of the risks involved in different asset allocation policies and trading strategies. Bankers should also be able to help their clients avoid overconfidence.
Social implications – Debiasing overconfidence in the finance industry likely carries public benefits. The results imply that this task is not easy, but not impossible either. The authors think further investment in this endeavor is justified.
Originality/value – Documenting an important judgment bias among finance professionals and estimating the effects of debiasing.
Citation
Kaustia, Markku and Perttula, Milla, 2012, “Overconfidence and debiasing in the financial industry”, Review of Behavioral Finance 4(1), 46-62. DOI: 10.1108/19405971211261100
For more information please contact Markku Kaustia.