Sensation seekers trade stocks more frequently

by on May 20, 2006 at 4:46 am in Economics | Permalink

This study analyzes the role that two psychological attributes–sensation seeking and overconfidence–play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor’s tax filings, driving record, and psychological profile. We use the data to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.

Here is the full paper.

J May 20, 2006 at 9:32 am
levan September 8, 2006 at 4:43 am
overconfidence October 27, 2006 at 5:51 am

How do we relate the feeling of overconfidence to overconfidence in actions? How do we even define the latter in an environment where the same choice is seldom made more than once?

Could be worth having a look at a paper by cesarini, sandewall,and johannesson on the overconfidence in economics issue, journal of economic behaviour and organization
http://dx.doi.org/10.1016/j.jebo.2004.10.010
(sorry bout the self-promotion…)

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