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| Just, David R.; Cao, Ying; Zilberman, David. |
| Previous studies have found underestimation of risk, or overconfidence, to be pervasive. In this paper, we model overconfidence as a reduction in perceived variance. We generalize the analysis of Sandmo and examine the effects of competition on firms displaying overconfidence. Cases for both competitive equilibrium and imperfect competition are investigated. We show that overconfidence may strictly dominate rationality in a competitive market by leading risk averse producers to invest greater amounts and produce more. This leads to a higher average profit, and greater variance of profits, leaving the producer a greater probability of surviving competitive pressures. Despite the greater variance of profits, if enough producers underestimate their risk, they... |
| Tipo: Conference Paper or Presentation |
Palavras-chave: Overconfidence; Misperception; Production; Competition; Production Economics; Risk and Uncertainty. |
| Ano: 2009 |
URL: http://purl.umn.edu/49161 |
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| Cruz Junior, Jose Cesar. |
| This paper aims to identify signs of overconfidence among corn producers in south and central-west Brazil. Over the period from October to November 2008, farmers were chosen to answer questions regarding their knowledge of futures markets and price expectations. A large part of subjects responded they do not trade futures contracts because they do not have enough information on the subject. The results show respondents were miscalibrated when estimating directly-stated and the indirectly-stated expected prices. In addition, for certain respondents, subjective variance for corn proves to be significantly less than the market variance. Finally, the paper concludes that the overconfidence effect can partially explain the low use of futures markets by... |
| Tipo: Conference Paper or Presentation |
Palavras-chave: Overconfidence; Subjective probability; Probability elicitation; Institutional and Behavioral Economics. |
| Ano: 2009 |
URL: http://purl.umn.edu/49439 |
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