We measure the degree of overconfidence in judgement (in the form of miscalibration, "i.e." the tendency to overestimate the precision of one's information) and self-monitoring (a form of attentiveness to social cues) of 245 participants and also observe their behaviour in an experimental financial market under asymmetric information. Miscalibrated traders, underestimating the conditional uncertainty about the asset value, are expected to be especially vulnerable to the winner's curse. High self-monitors are expected to behave strategically and achieve superior results. Our empirical results show that miscalibration reduces and self-monitoring enhances trading performance. The effect of the psychological variables is strong for men but non-existent for women. Copyright The Review of Economic Studies Limited, 2005.
and participants to the American Finance Association and the NBER Behavioral Finance meeting for providing useful comments. A previous version of this paper circulated under the title "Price formation with confirmation bias". All errors are ours. Financial support from the Agence Nationale de la Recherche (ANR-09-BLAN-0358-01) and from the Chaire SCOR at IDEI-R is gratefully acknowledged.
This paper studies a financial market populated by adaptive traders. Learning is modeled following Camerer and Ho (1999) . A call market and a Walrasian tatonnement are compared in an environment in which both institutions have the same Nash and competitive equilibrium outcomes. When traders learn via a belief-based model, equilibrium is discovered in both types of markets. In contrast, when traders learn via a reinforcement-based model, convergence to equilibrium is achieved in the Walrasian tatonnement but not in the call market. This paper suggests that market mechanisms can be designed to foster traders' learning of equilibrium strategies. Copyright 2007 by The American Finance Association.
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