Our objective is to contribute to the overconfidence literature by considering a more general proxy for overconfidence. We do so by operationalizing measures of subjective and objective cognitive ability in the Health and Retirement Study to estimate a proxy for overconfidence. This proxy is the remaining variation of subjective cognition not explained by an objective cognitive score. We then explore differences in financial asset holdings and overall net worth holdings by people we characterize as over or under-confident, and those of average confidence. We find that overconfident individuals are less likely to hold most types of financial assets, and have lower net worth than average and under-confident individuals. Conditional on ownership, overconfident individuals hold a greater share of financial wealth in liquid assets and other financial assets. Under-confident individuals invest similarly to people with average confidence.
Presented in Session 6. Health & Mortality & Aging