Overconfident investors and probability misjudgments

Doron Kliger, Ori Levy

Research output: Contribution to journalArticlepeer-review


This paper explores systematic distortions of subjective probabilities by overconfident investors. In agreement with many non-expected utility theories, our devised setup acknowledges nonlinear weighting of physical probabilities by both rational and overconfident investors. Overconfidence - assumed to be higher after a history of gains and lower after a history of losses - changes these probability transformations. Using US asset price data, overconfident investors are found to be more optimistic than rational investors about future prospects.

Original languageEnglish
Pages (from-to)24-29
Number of pages6
JournalJournal of Socio-Economics
Issue number1
StatePublished - Jan 2010


  • Market data
  • Overconfidence
  • Probability weighting functions

ASJC Scopus subject areas

  • Economics and Econometrics


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