An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Sasson Bar - Yosef
The Hebrew University -- Rutgers University

Itzhak Venezia
The Hebrew University

Abstract: This paper analyzes experimentally capital market participants overconfidence when making predictions of financial and accounting numbers and explores . We also compare the extent to which professional analysts differ from other investors in that respect, and analyze the extent to which familiarity with a variable predicted the complexity of the task, and the amount of information affect overconfidence. For this we conducted three experiments. Two experiments with advanced accounting students as subjects, where the experiments differed in the firm the subjects analyzed, and the third with professional financial analysts. In each experiment we provided the subjects with past accounting reports and other financial data of a firm. Based on these data the subjects were asked to forecast Net Income, EPS, and Share Price. In all experiments we find that the subjects exhibit a considerable degree of overconfidence. We found that the professional analysts were slightly more overconfident.

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