Regulation and Taxation of Financial Markets

Project summary

This project analyses the interactive effects of incentives and behavioral traits on financial market stability. In the second funding phase, a first, theoretical part will incorporate the heterogeneity in the degree of overconfidence observed in our experiments and study how managers with different beliefs sort into a heterogeneous banking sector. In the second, experimental part, we aim to provide explanations for the highly relevant, but poorly understood, formation of asset market bubbles. In the third, empirical part we introduce our new measure of overconfidence in a set of survey questions for the German Socioeconomic Panel (SOEP) and test its power in explaining financial and non-financial choices made by SOEP respondents.