Managerial miscalibration
By: Itzhak Ben-David, John R. Graham, Campbell R. Harvey
Contributors: Graham, John R.; Harvey, Campbell R.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16215; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16215.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "Miscalibration is a form of overconfidence examined in both psychology and economics.  Although it is often analyzed in lab experiments, there is scant evidence about the effects of miscalibration in practice.  We test whether top corporate executives are miscalibrated, and study the determinants of their miscalibration.  We study a unique panel of over 11,600 probability distributions provided by top financial executives and spanning nearly a decade of stock market expectations.  Our results show that financial executives are severely miscalibrated: realized market returns are within the executives' 80% confidence intervals only 33% of the time.  We show that miscalibration improves following poor market performance periods because forecasters extrapolate past returns when forming their lower forecast bound ("worst case scenario"), while they do not update the upper bound ("best case scenario") as much.  Finally, we link stock market miscalibration to miscalibration about own-firm project forecasts and increased corporate investment"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 9/2/2010.

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