Advances in Management and Applied Economics

The Social Genesis of Overconfidence: How Social Capital and Risk Tolerance Shape Investor Decisions

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• Abstract

   

  This study investigates whether social capital functions as a key antecedent of investor overconfidence and evaluates the mediating role of risk tolerance within this relationship. Using survey data from 425 investors and structural equation modeling, the analysis shows that social capital is positively associated with overconfidence, that risk tolerance also exhibits a positive relationship with overconfidence, and that risk tolerance partially mediates the influence of social capital on overconfidence. These findings highlight how investors’ relational resources shape risk attitudes and cognitive biases, extending behavioral finance research by offering a socially embedded explanation of overconfidence formation. The results further provide practical implications for financial advisors, platform designers, and policymakers seeking to mitigate socially driven overconfidence and excessive risk-taking through targeted education and intervention strategies.

   

  JEL classification numbers: D91, G41.

  Keywords: Social capital, Risk tolerance, Overconfidence, Behavioral finance, Investor psychology.