A new study from Leibniz University Hannover finds that the 1/3 of German professional fund managers who believe human biases to be important in financial markets have better calibrated estimates and rely more on momentum and contrarian strategies, but otherwise think and act like other fund managers:

[A] literature in psychology … has clearly revealed the "bias blind spot" (Pronin et al., 2002), i.e. the belief that one’s own judgments are less susceptible to biases than the judgments of others. … [Among] professional … fund managers we differentiate … "endorsers" of behavioral finance … [who] believe that the approach of behavioral finance truly reflects decision behavior in fund management (and who know the key messages of behavioral finance well) … [and] non-endorsers. … We have surveyed [104] fund managers in Germany and classify them according to their self-assessment into these two groups. … Whereas [the 37] endorsers recognize significantly stronger behavioral finance effects in other fund managers’ behavior than non-endorsers, the perception of their own behavior is largely unaffected by their insights. When endorsers’ are asked about their own behavior with respect to items being linked to behavioral finance, such as hindsight bias or disposition effect, they answer as non-endorsers do. However, there is one exception … Endorsers show less miscalibration with respect to forecasting the interval of a stock index. … We [also] find … endorsers rely more on momentum and contrarian [versus buy-and-hold] strategies. … Endorsement … is not closely related to personal characteristics, such as being older or holding a better position etc.

Even for those with strong incentives to correct for biases, knowing about and believing in biases has influenced their decisions little, and not obviously to their benefit. This suggests that we focus not on trying to correct our personal biases but instead on identifying and promoting institutions, such as prediction markets, to reduce biases.

Hat tip to Zubin Jelveh and Tyler Cowen.

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