Dennis Alexis Valin Dittrich

Overconfidence in Investment Decisions: An Experimental Approach

Abstract By experimentally inducing risk aversion, overconfidence in an investment setting is investigated, comparing the evaluation of actual investment decisions with alternative choices. After selecting their own investment, subjects confront three alternative investment choices, including the optimal one, and are asked about their willingness to pay and to substitute their own for alternative choices. Overconfidence is defined as the persistent overevaluation of the own investment decision. Results indicate that overconfidence increases (i) with the absolute deviation from optimal choices, (ii) with task complexity involving the number of risky assets, and (iii) decreases with individual perceived uncertainty.

Monitoring and Pay: An Experiment on Employee Performance Under Endogenous Supervision

We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under standard assumptions. Yet, we also find evidence for reciprocal behavior. Our data analysis shows, however, that it does not pay for the employer to solely rely on the reciprocity of employees.

Bad Hiring Chances for Older Workers

It is often claimed that work opportunities decline with age, that hiring chances of older persons are poor. We investigate this by collecting questionnaire responses of personnel managers of German manufacturing firms, eliciting a hypothetical hiring decision based on three fictitious candidates. We rely on an age-neutral job and a small age-gap of 14 years between the youngest and the oldest candidate. The quasi-experimental design of the questionnaire allows to control for possible productivity differences and other economic explanations for declining hiring chances. The data show a 60 percentage point difference in hiring probabilities between the youngest and oldest candidate.