Clarifying managerial biases using a probabilistic framework
Journal
Journal of Behavioral and Experimental Finance
Date Issued
September 2020
DOI
10.1016/j.jbef.2020.100333
Abstract
A unifying probabilistic framework is developed to analyze and compare the impact of the psychological biases of overconfidence and underconfidence on managerial perceptions about the expected value, overall risk, downside risk, value-at-risk and expected shortfall of decision-making economic variables. The results depict that overconfident managers overestimate their expected values and underestimate downside risk, VaR and ES of decision-making variables. Underconfident managers, on the other hand, underestimate their expected values and overestimate downside risk, value-at-risk, and expected shortfall.