Overconfidence and endogenous information acquisition

摘要

Purpose-The purpose of this paper is to examine the implications of overconfidence for informationacquisition and market efficiency.Design/methodology/approach-The paper studies a model of a competitive market with both overconfident and rational traders endogenously acquiring costly differential information.Findings-The paper shows that overconfident traders acquire more information than do rational traders,and improve market informational efficiency by making price more informative than in a fully rational market.Originality/value-This result is in contrast with Odean where information acquisition is exogenous,and overconfidence worsens price quality.Therefore,it may be crucial to incorporate endogenous information acquisition into models of overconfidence.