Lay people beliefs in professional and naïve stock investors’ proneness to judgmental biases

Abstract

We hypothesize that lay people due to over-reliance on expertise have unwarranted beliefs in professional stock investors’ skill, which may be one reason why they trust financial institutions. In order to investigate this hypothesis, survey questions were constructed to measure whether lay people beliefs in professional stock investors differ from naïve stock investors in making more rational and less biased judgments. Study 1 showed that both economics undergraduates (n=118) and psychology undergraduates (n=72) believe that professional stock investors are more rational and overconfident than naïve investors, but less optimistically biased, less influenced by affect, and less influenced by others. Similar results were obtained in Study 2 comparing a random population-based sample (n=178) to a heterogeneous undergraduate sample (n=186).