Anxiety, Overconfidence, and Excessive Risk Taking

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe 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.

Deception and self-deception

“…Motives for investing in biased beliefs include "ego-utility" from positive self-beliefs(Köszegi, 2006), "anticipatory utility" from the savoring of future successes (see alsoBrunnermeier and Parker, 2005;Schwardmann, 2017), political ideoligy Le Yaouanq (2016) and loss aversion Maier (2017). More functional motives for overconfidence include an increased personal motivation to overcome self-control problems(Bénabou and Tirole, 2002), combatting anxiety and risk-aversion(Eisenbach and Schmalz, 2015), or an increase in task performance(Compte and Postlewaite, 2004).…”

Differences in Risk Perception Factors and Behaviours amongst and within Professionals and Trainees in the Aviation Engineering Domain

“…In the second part of the questionnaire, each participant was prompted to choose a probable course of action that he/she would follow regarding five scenarios. The scenarios were based on the concept of Line Oriented Flight Training (LOFT) [59] and on the premise that a "low-risk aversion or a low perception of risk can drive risky behavior" [60]. The scenario-based training method is common in the aviation context [61], and LOFT constitutes a type of scenario-based training method [62].…”

Up Close It Feels Dangerous: 'Anxiety' in the Face of Risk

“…We discuss consequences for information acquisition and belief formation in a separate paper. Eisenbach and Schmalz (2012) show why it may be beneficial to a sophisticated anxiety-prone agent to hold overconfident beliefs, and how such self-delusion can be accomplished endogenously.…”

“…The disutility implied by the use of a commitment device that a sophisticate may choose to use must be subtracted from the utility from equity returns of such an agent. For example, we show in Eisenbach and Schmalz (2012) how overconfidence can let an anxiety-prone agent make more dynamically consistent decisions. But then, the disutility from overconfidence, stemming from 'excessive risktaking,' needs to be subtracted from the increased utility from holding equity without overtrading.…”