The One-Man Show: The Effect of Joint Decision-Making on Investor Overconfidence

Abstract

This study examines the impact of shared decision-making on investor overconfidence. Data from 2,000 investors, 6,394 consumers, and 657 experimental participants shed light on whether consumers who engage in joint financial decision-making are less affected by investor overconfidence than those who decide on their own. The findings show that investors who jointly decide are substantially less overconfident. However, family- or friend-inclined interactions are more effective in reducing overconfidence than relying on a financial advisor. The current research theoretically argues and empirically shows that shared metaknowledge drives this diminishing effect by highlighting unknown aspects of a financial decision. Compared to providing investors with solutions, problem reformulation, validation, or legitimation, only metaknowledge consistently decreases overconfidence in joint financial decision-making. It is argued that the process of highlighting unknowns can explain why interactions with family and friends have a more pronounced impact on investor overconfidence than consulting a professional advisor. The study provides a feasible debiasing tool to consumers, financial institutions, and other financial service providers to decrease overconfidence by emphasizing unknown aspects of an investment toward improving the quality of a consumer’s financial decisions under uncertainty.

Overconfidence at the time of COVID-19:Does it lead to laxer attitudes?

“…Finally, exploring the root causes of overconfidence in one's health knowledge are beyond the scope of this paper. Prior studies suggested that, among other possible explanations, a lack of metaknowledge or correlation neglect may drive such overconfident believes ( Ortoleva and Snowberg, 2015 ; Piehlmaier, 2022 ). Future studies could use these explanations as a starting point to explore the origin of health-related overconfidence.…”

“…This allowed participants in the second arm with COVID-19 questions to reflect on their virus-specific knowledge. Previous research suggests that the task can calibrate participants' confidence through an increase in metaknowledge ( Piehlmaier, 2022 ). No such effect was expected from the general knowledge questions in the first group since they were unrelated to the subsequent block.…”