The experience of willing an act arises from interpreting one's thought as the cause of the act. Conscious will is thus experienced as a function of the priority, consistency, and exclusivity of the thought about the action. The thought must occur before the action, be consistent with the action, and not be accompanied by other causes. An experiment illustrating the role of priority found that people can arrive at the mistaken belief that they have intentionally caused an action that in fact they were forced to perform when they are simply led to think about the action just before its occurrence. Conscious will is a pervasive human experience. We all have the sense that we do things, that we cause our acts, that we are agents. As William James (1890) observed, "the whole sting and excitement of our voluntary life... depends on our sense that in it things are really being decided from one moment to another, and that it is not the dull rattling off of a chain that was forged innumerable ages ago " (p. 453). And yet, the very notion of the will seems to contradict the core assumption of psychological science. After all, psychology examines how behavior is caused by mechanisms—the rattling off of genetic, unconscious, neural, cognitive, emotional, social, and yet other chains that lead, dully or not, to the things people do. If the things we do are caused by such mechanisms, how is it that we nonetheless experience willfully doing them? Our approach to this problem is to look for yet another chain—to examine the mechanisms that produce the experience of conscious will itself. In this article, we do this by exploring the possibility that the experience of will is a result of the same mental processes that people use in the perception of causality more generally. Quite simply, it may be that people experience conscious will when they interpret their own thought as the cause of their action. This idea means that people can experience conscious will quite independent of any actual causal connection between

We examine changes in the stock trading behavior and investment performance of 1,607 investors who switch from phone based to online trading during the period 1992 to 1995. We document that young men who are active traders with high incomes and a preference for investing in small growth stocks with high market risk are more likely to switch to online trading. We also find that those who switch to online trading experience unusually strong performance prior to going online, beating the market by more than two percent annually. After going online, they trade more actively, more speculatively, and less profitably than before-- lagging the market by more than three percent annually. A rational response to reductions in market frictions (lower trading costs, improved execution speed, and greater ease of access) does not explain these findings. The increase in trading and reduction in performance of online investors can be explained by overconfidence augmented by self-attribution bias, the illusion of knowledge, and the illusion of control.

Human cognition is often biased, from judgments of the time of impact of approaching objects all the way through to estimations of social outcomes in the future. We propose these effects and a host of others may all be understood from an evolutionary psychological perspective. In this article, we elaborate error management theory (EMT; Haselton & Buss, 2000). EMT predicts that if judgments are made under uncertainty, and the costs of false positive and false negative errors have been asymmetric over evolutionary history, selection should have favored a bias toward making the least costly error. This perspective integrates a diverse array of effects under a single explanatory umbrella, and it yields new content-specific predictions. Better safe than sorry. (folk wisdom) Nothing ventured, nothing gained. (contradictory folk wisdom) These two wisdoms seem contradictory. The first urges caution, whereas the second reminds us that we have nothing to lose and should throw caution to the

The field of modern financial economics assumes that people behave with extreme rationality, but they do not. Furthermore, people’s deviations from rationality are often systematic. Behavioral finance relaxes the traditional assumptions of financial economics by incorporating these observable, systematic, and very human departures from rationality into standard models of financial markets. We highlight two common mistakes investors make: excessive trading and the tendency to disproportionately hold on to losing investments while selling winners. We argue that these systematic biases have their origins in human psychology. The tendency for human beings to be overconfident causes the first bias in investors, and the human desire to avoid regret prompts the second. There is one important caveat to the notion that we live in a new economy, and that is human psychology... which appears essentially immutable.

Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are less than fully rational. It studies the effect of nonstandard preferences and judgmental biases on managerial decisions. This survey reviews the theory, empirical challenges, and current evidence pertaining to each approach. Overall, the behavioral approaches help to explain a number of important financing and investment patterns. The survey closes with a list of open questions.

∗This paper is an updated version of a previous working paper, “The Positive Role of Overconfidence and

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Objective This paper argues that adherence to a single, specialised theory of gambling is largely untenable. It highlights limitations of existing theories of gambling at three increasingly specific levels of analysis; namely, the social, psychological and biological.

This paper focuses on egocentric biases in financial decisions. Subjects first design a portfolio, whereby each combination of assets yields the same expected return and variance of returns. They are then confronted with two alternative portfolios; the average portfolio and the portfolio of one's selected expert. Illusion of expertise prevails if one prefers nevertheless the own portfolio. Using the random price mechanism reveals that most subjects prefer their own portfolio to the average or the expert's portfolio. Illusion of expertise is shown to be stable individually, over alternatives, and for both elicitation methods, willingness to pay and to accept.

This paper is an updated version of a previous working paper, “Capital Budgeting in the Presence of Managerial Overconfidence and Optimism, ” by the same authors. Financial support by the Rodney L. White Center for Financial Research is gratefully acknowledged. The authors would like to thank Andrew Abel,