Look ma(rket), No Hands! Optimism Bias and Illusion of Control in Finance Professionals

Abstract

The optimism bias is the tendency to judge one’s own risk as less than the risk of others. In the present study we found that also finance professionals (N = 60) displayed an optimism bias when forecasting the return of an investment made by themselves or by a colleague of the same expertise. Using a multidimensional approach to the assessment of risk perception, we found that participants’ forecasts were biased not because they judged negative consequences as less likely for themselves, but because they were overconfident in their ability to avoid and control them.