Abstract
This chapter presents an overview of the overconfidence construct. Stemming from the behavioral finance literature, the overview discusses overconfidence as a result of several cognitive biases. In particular, there is a detailed discussion on the self-serving bias, the valence effect, the wishful thinking bias, and the anchoring effect. These biases have a detrimental effect in business and financial decisions. The chapter then presents the Big Five Model, as a model of interpretation for human personality. This model encompasses extroversion, friendliness, conscientiousness, emotional stability, and open-mindedness. All these elements are salient when determining overconfidence. After a discussion on the implications of an overconfident attitude in the stock market, there is a clear discussion on the behavior of the overconfident manager. The chapter concludes with the impact of overconfidence for small and medium enterprises. The ideas developed here are a base for the in-depth contextual analysis of the subsequent chapters.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
References
Arcari. (2004). Prevenire la crisi e gestire il turnaround nelle PMI attraverso le analisi economiche. Quaderni della Facoltà di Economia dell’Università dell’Insubria. http://eco.uninsubria.it/dipeco/Quaderni/files/QF2004_5.pdf. Retrieved March, 2017.
Bazerman, M. H. (1990). Judgment in managerial decision making (2nd ed.). New York: John Wiley.
Ben-David, I., Graham, J. R., & Harvey, C. R. (2007). Managerial overconfidence and corporate policies (No. w13711). National Bureau of Economic Research.
Benos. (1998). Aggressiveness and survival of overconfident traders. Journal of Financial Markets, 1(3–4), 353–383.
Busenitz, L. W., & Barney, J. B. (1997). Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making. Journal of business venturing, 12(1), 9–30.
Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. The American Economic Review, 89(1), 306–318.
Cooper, A. C., Woo, C. Y., & Dunkelberg, W. C. (1988). Entrepreneurs’ perceived chances for success. Journal of business venturing, 3(2), 97–108.
Englmaier, F. (2004). A strategic rationale for having overconfident managers. In 32nd Conference of the European Association for Research in Industrial Economics.
Fast, N. J., Sivanathan, N., Mayer, N. D., & Galinsky, A. D. (2012). Power and overconfident decision-making. Organizational Behavior and Human Decision Processes, 117(2), 249–260.
Gervais, S. (2010). Capital budgeting and other investment decisions. In Behavioral finance: Investors, corporations, and markets (pp. 413–434). Hoboken: Wiley.
Gervais, S., & Goldstein, I. (2007). The positive effects of biased self-perceptions in firms. Review of Finance, 11(3), 453–496.
Griffin, D., & Tversky, A. (1992). The weighing of evidence and the determinants of confidence. Cognitive Psychology, 24(3), 411–435.
Hoffrage, U. (2004). 13 Overconfidence. Cognitive illusions: A handbook on fallacies and biases in thinking, judgement and memory (p. 235). Hove: Psychology Press.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Koellinger, P., Minniti, M., & Schade, C. (2007). “I think I can, I think I can”: Overconfidence and entrepreneurial behavior. Journal of Economic Psychology, 28(4), 502–527.
Kahneman, D., & Lovallo, D. (1993). Timid choices and bold forecasts: A cognitive perspective on risk taking. Management Science, 39(1), 17–31.
Pallier, G., Wilkinson, R., Danthiir, V., Kleitman, S., Knezevic, G., Stankov, L., & Roberts, R. D. (2002). The role of individual differences in the accuracy of confidence judgments. The Journal of General Psychology, 129(3), 257–299.
Phillips, L. D., & Wright, C. N. (1977). Cultural differences in viewing uncertainty and assessing probabilities. In Decision making and change in human affairs (pp. 507–519). Netherlands: Springer.
Russo, J. E., Schoemaker, P. J., & Russo, E. J. (1989). Decision traps: Ten barriers to brilliant decision-making and how to overcome them. New York, NY.: Doubleday/Currency.
Schaefer, P. S., Williams, C. C., Goodie, A. S., & Campbell, W. K. (2004). Overconfidence and the big five. Journal of Research in Personality, 38(5), 473–480.
Weinstein, N. D. (1980). Unrealistic optimism about future life events. Journal of personality and social psychology, 39(5), 806.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2018 The Author(s)
About this chapter
Cite this chapter
Invernizzi, A.C. (2018). Managerial Overconfidence. In: Overconfidence in SMEs. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-66920-5_1
Download citation
DOI: https://doi.org/10.1007/978-3-319-66920-5_1
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-66919-9
Online ISBN: 978-3-319-66920-5
eBook Packages: Business and ManagementBusiness and Management (R0)