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A Model Of Overconfidence

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  • Bruce A. Weinberg

Abstract

People use information about their ability to choose tasks. If more challenging tasks provide more accurate information about ability, people who care about and who are risk averse over their perception of their ability will choose tasks that are not sufficiently challenging. Moderate overestimation of ability and overestimation of the precision of initial information leads people to choose tasks that raise expected output (and utility); however, extreme overconfidence leads people to undertake tasks that are excessively challenging. Consistent with our results, psychologists find that moderate overconfidence is both pervasive and advantageous. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Asia Pty Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Pacific Economic Review.

Volume (Year): 14 (2009)
Issue (Month): 4 (October)
Pages: 502-515

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Handle: RePEc:bla:pacecr:v:14:y:2009:i:4:p:502-515

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  1. Waldman, Michael, 1994. "Systematic Errors and the Theory of Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 482-97, June.
  2. Kyle, Albert S & Wang, F Albert, 1997. " Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?," Journal of Finance, American Finance Association, vol. 52(5), pages 2073-90, December.
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Cited by:
  1. Sjögren, Anna & Sällström, Susanna, 2004. "Trapped, Delayed and Handicapped," Working Paper Series 613, Research Institute of Industrial Economics.
  2. Antonio Filippin & Marco Paccagnella, 2012. "Family background, self-confidence and economic outcomes," Temi di discussione (Economic working papers) 875, Bank of Italy, Economic Research and International Relations Area.
  3. Kuhnen, Camelia M. & Tymula, Agnieszka, 2008. "Rank expectations, feedback and social hierarchies," MPRA Paper 13428, University Library of Munich, Germany, revised Jan 2009.
  4. Heller, Yuval, 2010. "Overconfidence and risk dispersion," MPRA Paper 25893, University Library of Munich, Germany.

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