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Do teams alleviate or exacerbate overreaction in beliefs?
Barahona,Ricardo Cassella,Stefano Jansen,Kristy Pezone,Vincenzo
Barahona,Ricardo
Cassella,Stefano
Jansen,Kristy
Pezone,Vincenzo
Abstract
We investigate whether teams exhibit increased or reduced overreaction in expectation formation relative to individuals. Using preregistered randomized experiments that directly elicit expectations about future returns, we find that teams display lower belief overreaction to recent investment performance. A quantitative decomposition shows that this team effect stems primarily from a ''self-selection'' mechanism, whereby the most biased team member chooses to influence the team decision less. An LLM-based analysis of team interactions reinforces this result. A complementary analysis of US equity mutual fund managers operating both individually and as part of a team yields consistent evidence of lower overreaction in teams.
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Date
2026-02
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1-s2.0-S0304405X25002272-main.pdf
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- Embargoed until 2026-06-23
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Keywords
expectation formation, extrapolation, teams, lab experiment, behavioral finance, performance, G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors, G41 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets, D91 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
Citation
Barahona, R, Cassella, S, Jansen, K & Pezone, V 2026, 'Do teams alleviate or exacerbate overreaction in beliefs?', Journal of Financial Economics, vol. 176, 104219. https://doi.org/10.2139/ssrn.3783421, https://doi.org/10.1016/j.jfineco.2025.104219
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info:eu-repo/semantics/embargoedAccess