More Information=More Confidence=More Problems

////More Information=More Confidence=More Problems

More Information=More Confidence=More Problems

By |2017-08-18T17:00:09+00:00April 16th, 2013|Behavioral Finance|

Effects of amount of information on judgment accuracy and confidence

  • Claire I. Tsai, Joshua Klayman, Reid Hastie
  • A version of the paper can be found here.
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Abstract:

When a person evaluates his or her confidence in a judgment, what is the effect of receiving more judgment-relevant information? We report three studies that show when judges receive more information, their confidence increases more than their accuracy, producing substantial confidence–accuracy discrepancies. Our results suggest that judges do not adjust for the cognitive limitations that reduce their ability to use additional information effectively. We place these findings in a more general framework of understanding the cues to confidence that judges use and how those cues relate to accuracy and calibration.

Data Sources:

Survey Evidence

Alpha Highlight:

Empiritrage has a detailed report here

confidence

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

 


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About the Author:

Wesley Gray, PhD
Wes Gray has published multiple academic papers and four books, including Quantitative Value (Wiley, 2012), DIY Financial Advisor (Wiley, 2015), and Quantitative Momentum (Wiley, 2016).After serving as a Captain in the United States Marine Corps, Dr. Gray earned an MBA and a PhD in finance from the University of Chicago where he studied under Nobel Prize Winner Eugene Fama. Next, Wes took an academic job in his wife’s hometown of Philadelphia and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management firm that delivers affordable active exposures for tax-sensitive investors. He is a contributor to multiple industry publications and regularly speaks to professional investor groups across the country. Wes currently resides in the suburbs of Philadelphia with his wife and three children.
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