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Social Reactions to Overconfidence: Do the Costs of Overconfidence Outweigh the Benefits?

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  • Kennedy, Jessica A.
  • Anderson, Cameron
  • Moore, Don A.
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    Abstract

    Scholars have recently proposed that overconfidence pervades self-judgment because of the social benefits it provides individuals, such as higher status in groups (Anderson, Brion, & Moore, 2010). A counter-argument to this social-functional account of overconfidence is that the possible social costs of overconfidence could outweigh its benefits. Specifically, individuals could be severely punished by groups if their overconfidence were to become apparent to others. This paper examines social reactions to overconfidence by exploring whether groups in fact punish individuals revealed to be overconfident. In three laboratory studies, we found that groups did not react negatively to individuals revealed to be overconfident and in fact tended to view overconfident individuals as more socially skilled. This research lends further empirical support to the social-functional account of overconfidence by suggesting that the status-related benefits of overconfidence outweigh the possible social costs.

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    File URL: http://www.escholarship.org/uc/item/2p7835vm.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt2p7835vm.

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    Date of creation: 30 Mar 2011
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    Handle: RePEc:cdl:indrel:qt2p7835vm

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    Related research

    Keywords: status; overconfidence; self-enhancement; hierarchy; accountability; Business; Social and Behavioral Sciences;

    This paper has been announced in the following NEP Reports:

    References

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    1. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    2. Moore, Don A. & Klein, William M.P., 2008. "Use of absolute and comparative performance feedback in absolute and comparative judgments and decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 107(1), pages 60-74, September.
    3. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04.
    4. Erik Hoelzl & Aldo Rustichini, 2005. "Overconfident: Do You Put Your Money On It?," Economic Journal, Royal Economic Society, vol. 115(503), pages 305-318, 04.
    5. Moore, Don A., 2007. "Not so above average after all: When people believe they are worse than average and its implications for theories of bias in social comparison," Organizational Behavior and Human Decision Processes, Elsevier, vol. 102(1), pages 42-58, January.
    6. Larrick, Richard P. & Burson, Katherine A. & Soll, Jack B., 2007. "Social comparison and confidence: When thinking you're better than average predicts overconfidence (and when it does not)," Organizational Behavior and Human Decision Processes, Elsevier, vol. 102(1), pages 76-94, January.
    7. Waldman, Michael, 1994. "Systematic Errors and the Theory of Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 482-97, June.
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    Cited by:
    1. Anderson, Cameron & Brion, Sebastien & Moore, Don A. & Kennedy, Jessica A., 2012. "A status-enhancement account of overconfidence," Institute for Research on Labor and Employment, Working Paper Series qt6s5812wf, Institute of Industrial Relations, UC Berkeley.

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