To read this content please select one of the options below:

Overconfidence and forecast accuracy: An experimental investigation on the hard–easy effect

Bin Liu (School of Accounting, Economics and Finance, University of Wollongong, Wollongong, Australia)
Monica Tan (School of Economics, Finance and Marketing, Royal Melbourne Institute of Technology, Melbourne, Australia)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 8 July 2019

Issue publication date: 27 July 2021




This paper aims to investigate how overconfidence bias affects financial market participants’ forecast accuracy based on the hard–easy effect concept of overconfidence research.


The authors adopt an experimental method for behavioural finance studies. In the experiment, the authors measure and capture participants’ forecast accuracy as well as their individual confidence level. In particular, participants make incentive-compatible forecasts, that is, the elicited forecast determines the participants’ financial rewards in real monetary gain/loss.


The results show that the hard–easy effect causes optimistic forecasts for hard-to-predict stocks, indicating that overconfident investors tend to make over-optimistic and less accurate price forecasts when making judgements on hard tasks. Consistent with the literature, the authors find evidence of a negative relationship between forecast accuracy and confidence level. The results also indicate that the overall relationship between overconfidence and forecast accuracy is driven by the price forecasts made for hard-to-predict stocks.


As per the authors’ knowledge, this paper is one of the first studies that provides empirical evidence directly showing the hard–easy effect in the relation between overconfidence and forecast ability in an experimental setting. This study uses an experimental design that specifically measures the hard–easy effect in a stock market scenario using professional financial information and real monetary incentives, which have not been used in any previous studies of the hard–easy effect.



Liu, B. and Tan, M. (2021), "Overconfidence and forecast accuracy: An experimental investigation on the hard–easy effect", Studies in Economics and Finance, Vol. 38 No. 3, pp. 601-618.



Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

Related articles