Overconfidence and the regulation of financial institutions (B07)

• Subject Area: Economic Policy, Applied Economics ; Accounting and Finance
• Term: since 2017
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 280092119

This project analyzes the interactions between incentive effects and behavioral traits, especially non-rational expectations and overconfidence, in financial institutions and financial markets. The team also studies how regulation and tax policies may increase the resilience of financial institutions. Part I of the project examines the stability and importance of a particular belief bias, over-precision. Part II links over-precision with motivated beliefs and narratives. Part III examines the sorting of bank managers with different degrees of overconfidence into different incentive contracts. The methodic mix combines theory, experiments and other empirical analyses.

• DFG Programme: CRC/Transregios
• Subproject of: TRR 190: Rationality and Competition: The Economic Performance of Individuals and Firms
• Applicant Institution: Ludwig-Maximilians-Universität München
• Project Heads: Professor Dr. Andreas Haufler; Professor Dr. Frank Heinemann