In literature, overconfidence has been blamed for economic bubbles and crises as well as for international conflicts and wars. While education has already been shown to impact one's level of overconfidence previous research focused on the length and profoundness of education. This study, in contrast, examines the connection between overconfidence and the field in which a person has been educated. The issues covered are therefore how education and mind set are related, why a differentiation between "quantitative" and "qualitative" education makes sense in this context, and how different mind-sets influence an individual's proneness to overconfidence. Drawing on the dual process concept of reasoning from psychology it is argued that the focus of one's education may have an influence on individual levels of overconfidence through distinct ways of reasoning that are acquired and practiced during higher education. As support for this theory, data on the overconfidence of CEOs of the largest German companies is used and experiments for future research on this topic are suggested.   Auszug aus dem Text Text Sample: Chapter 4.2, Implications for Finance: Research on consequences of overconfident behavior for finance can be split into research on consequences for individual investors on the one hand and consequences for companies on the other hand. Therefore, I will split the relevant into literature on security trading (main area of interest for individual investors) as well as such on M&A and corporate investments (main areas of interest for companies in the context of overconfidence). 4.2.1, Implications for Security Trading: Overconfidence has a major effect on security trading by increasing trading activity. Varian (1989) suggests that heterogeneous beliefs about the value of an asset are essential for significant trading. Based on this, Benos (1998)

and Odean (1998) formulate the hypothesis that overconfident traders overestimate private information and accordingly the expected profits from a trade. As a consequence, they engage in costly trading activities, which rational investors would not do. This 'overtrading" lowers the expected utility of overconfident investors as compared to rational ones. Analyzing data from 10,000 customer trading accounts from 1987 to 1993, Odean (1999) empirically confirms that overconfidence leads to excessive trading and lowers investors' returns. Investors 'overtrade" to such an extent that, in Odean's sample, the stocks bought on average underperformed the stocks sold. DeLong et al. (1990) point out that with overconfident investors, whom they call 'noise traders", prices of assets are much more volatile and can diverge significantly from the fundamental value of those assets. This creates a higher risk for sophisticated investors. The authors mention that overconfident investors underestimate the risk of assets and heavily invest in risky assets, thereby raising their prices and unbalancing their price/return proportions. This idea is taken up by Daniel et al. (2001) who also consider overconfident investors responsible for market overreactions. The authors suggest a model, in which expected security returns are not only determined by an asset's intrinsic risk, but also by the risk of investor misvaluation. Scheinkman and Xiong (2003) go as far as blaming overconfident investors for speculative bubbles. They consider heterogeneous beliefs of overconfident and sophisticated investors about assets' values the reason for investors' willingness to pay more for assets than what their actual value would be. Like in the 'greater fool theory" investors value the option to later-on sell an asset to another investor at a higher price. Hence they are willing to buy

assets at prices exceeding their own valuation which can lead to speculative bubbles. Although the idea that overconfident investors underperform sophisticated investors seems to be prevalent in finance literature, Kyle and Wang (1997) argue that in a theoretical model with risk-neutral investors, overconfidence can strictly dominate rationality. They regard an agent's trading strategy as a trading-quantity choice in a standard Cournot duopoly. According to the authors, overconfidence serves as a commitment device, giving the overconfident trader a reputation for trading aggressively and making the rational investor trade less. Consequently, overconfident investors facing rational opponents can make more profit than rational ones.