Abstract
In a panel survey of individual investors, we show that investors' second-order beliefs-their beliefs about the return expectations of other investors-influence investment decisions. Investors who believe others hold more optimistic stock market expectations allocate more of their own portfolio to stocks even after controlling for their own risk and return expectations. However, second-order beliefs are inaccurate and exhibit several well-known psychological biases. We observe both the tendency of investors to believe that their own opinion is relatively more common among the population (false consensus) and that others who hold divergent beliefs are considered to be biased (bias blind spot).
| Original language | English |
|---|---|
| Journal | Journal of Economic Behavior and Organization |
| Volume | 107 |
| Pages (from-to) | 652-666 |
| Number of pages | 15 |
| ISSN | 0167-2681 |
| DOIs | |
| Publication status | Published - 1 Jan 2014 |
| Externally published | Yes |
Keywords
- Beauty contest
- Bias blind spot
- Expectations
- False consensus effect
- Naive realism
- Second-order beliefs