Group Diversity May Constrain the Most Dangerous Investment Bias: Overconfidence

//, Academic Research Insight/Group Diversity May Constrain the Most Dangerous Investment Bias: Overconfidence

Group Diversity May Constrain the Most Dangerous Investment Bias: Overconfidence

By |2018-09-04T10:52:33+00:00September 4th, 2018|Basilico and Johnsen, Academic Research Insight|

Gender Composition and Group Confidence Judgement: The Perils of All- Male Groups

  • Steffen Keck, Wenjie Tang
  • Management Science, forthcoming
  • A version of this paper can be found here
  • Want to read our summaries of academic finance papers? Check out our Academic Research Insight category.

What are the Research Questions?

Decision makers in organizations often face uncertainty. In these situations, adequate levels of confidence may be just as important for organizational performance as the decisions’ actual quality. A large number of studies have shown that individuals’ level of confidence is in fact not well calibrated; instead, most people are systematically overconfident (see a case study here and here is a summary).

The paper investigates the following research question:

  1. What is the potential effect of gender diversity on a group’s susceptibility to cognitive biases such as overconfidence?

There are three hypotheses tested:

  • Hypothesis 1: Group members in groups with at least one female member are more willing to share opinions and information than those in all-male groups
  • Hypothesis 2: Groups with at least one female group member will make better-calibrated confidence judgments than those consisting of only male members
  • Hypothesis 3: Better calibration in groups with at least one female member will be mediated by a higher extent of opinion and information sharing during the group deliberation

What are the Academic Insights?

By conducting laboratory experiments, the authors find the following:

  1. Compared to all-male groups the inclusion of female members significantly improves information sharing and as a consequence confidence calibration. Additionally, in groups with at least one female member, group members participated more evenly in group discussions than those in all-male groups where discussions ended more quickly and were more likely to be dominated by a single member.

Why does it matter?

This study extends prior work on group confidence calibration to the area of financial forecasts. Results suggest that organizations in the financial sector that rely on such forecasts could attempt to improve the quality of their forecasts by adjusting their human resource practices to ensure that relatively small groups of analysts contain at least one female member.

Additionally, it contributes to the literature on gender diversity and firm performance. Results suggest that one important advantage of avoiding all-male groups might be the increased ability to better deal with situations under substantial levels of uncertainty due to better confidence calibration. Such advantage might not be directly visible in firms’ financial performance but is crucial in keeping firms away from excessive risk, and hence away from the danger of bankruptcy.

The Most Important Chart from the Paper



We explore the joint effects of group decision making and group gender composition on the calibration of confidence judgments. Participants in two laboratory experiments, individually and in groups of three, stated confidence interval estimates for general-knowledge questions and for financial forecasts. Across both studies, our results reveal that groups with at least one female member are significantly better calibrated than all-male groups. This effect is mediated by the extent to which group members share opinions and information during the group discussion. Moreover, we find that compared to a statistical aggregation of individual confidence intervals, group discussions have a neutral or positive effect on the quality of confidence judgments for groups with at least one female group member; in contrast, group discussion actually harms confidence calibration for all-male groups. Overall, our findings indicate that compared to all-male groups, even the inclusion of a small proportion of female members can have a strong effect on the quality of group confidence judgment.

  • The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. Our full disclosures are available here. Definitions of common statistics used in our analysis are available here (towards the bottom).
  • Join thousands of other readers and subscribe to our blog.
  • This site provides NO information on our value ETFs or our momentum ETFs. Please refer to this site.

Elisabetta Basilico, PhD, CFA
Dr. Elisabetta Basilico is a seasoned investment professional with an expertise in "turning academic insights into investment strategies." Research is her life's work and by combing her scientific grounding in quantitative investment management with a pragmatic approach to business challenges, she’s helped several institutional investors achieve stable returns from their global wealth portfolios. Her expertise spans from asset allocation to active quantitative investment strategies. Holder of the Charter Financial Analyst since 2007 and a PhD from the University of St. Gallen in Switzerland, she has experience in teaching and research at various international universities and co-author of articles published in peer-reviewed journals. She and co-author Tommi Johnsen are currently writing a book on research-backed investment ideas. You can find additional information at Academic Insights on Investing.
Yes No
This website uses cookies and third party services. Settings Ok


We use “cookies” on this site. A cookie is a piece of data stored on a site visitor’s hard drive to help us improve your access to our site and identify repeat visitors to our site. For instance, when we use a cookie to identify you, you would not have to log in a password more than once, thereby saving time while on our site. Cookies can also enable us to track and target the interests of our users to enhance the experience on our site. Usage of a cookie is in no way linked to any personally identifiable information on our site. Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies.

Embedded Content

Articles on this Site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website.These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.