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An Unlucky Feeling: Persistent Overestimation of Absolute Performance with Noisy Feedback

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  • Grossman, Zachary
  • Owens, David

Abstract

How does overconfidence arise and persist in the face of experience and feedback? We examine experimentally how individuals' beliefs about their absolute, as opposed to relative, performance on a quiz react to noisy, but unbiased, feedback. Participants believe themselves to have received `unlucky' feedback and they overestimate their own scores, but they exhibit no overconfidence in non-ego-relevant beliefs---in this case, about others' scores. Unlike previous studies of relative performance estimates, we find this to be driven by overconfident priors, as opposed to biased updating, which suggests that social comparisons contribute to biased information processing. While feedback improves performance estimates, this learning does not translate into improved estimates of subsequent performances. This suggests that people use performance feedback to update their beliefs about their ability differently than they do to update their beliefs about their performance, contributing to the persistence of overconfidence.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt0dh5s03j.

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Date of creation: 11 Apr 2011
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Handle: RePEc:cdl:ucsbec:qt0dh5s03j

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Related research

Keywords: overconfidence; feedback; overestimation; absolute performance; Bayesian updating; biased updating; information processing; learning transfer; cross-game learning; quadratic scoring rule; behavioral economics; experimental economics; Behavioral Economics;

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References

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  1. 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.
  2. Burks, Stephen V. & Carpenter, Jeffrey P. & Götte, Lorenz & Rustichini, Aldo, 2010. "Overconfidence is a Social Signaling Bias," IZA Discussion Papers 4840, Institute for the Study of Labor (IZA).
  3. Jeremy Clark & Lana Friesen, 2009. "Overconfidence in Forecasts of Own Performance: An Experimental Study," Economic Journal, Royal Economic Society, vol. 119(534), pages 229-251, 01.
  4. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  5. Ertac, Seda, 2011. "Does self-relevance affect information processing? Experimental evidence on the response to performance and non-performance feedback," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 532-545.
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Cited by:
  1. Markus M. Mobius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2011. "Managing Self-Confidence: Theory and Experimental Evidence," NBER Working Papers 17014, National Bureau of Economic Research, Inc.
  2. Markus Mobius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2011. "Managing self-confidence: theory and experimental evidence," Working Papers 11-14, Federal Reserve Bank of Boston.
  3. Gary Charness & Aldo Rustichini & Jeroen van de Ven, 2011. "Self-Confidence and Strategic Deterrence," Tinbergen Institute Discussion Papers 11-151/1, Tinbergen Institute.
  4. Noémi Berlin & Marie-Pierre Dargnies, 2012. "Linking Beliefs to Willingness to Compete," Post-Print halshs-00755660, HAL.
  5. Gary Charness & Aldo Rustichini & Jeroen van de Ven, 2011. "Self-Confidence and Strategic Deterrence," Tinbergen Institute Discussion Papers 11-151/1, Tinbergen Institute.
  6. Noémi Berlin & Marie-Pierre Dargnies, 2012. "Linking Beliefs to Willingness to Compete," Documents de travail du Centre d'Economie de la Sorbonne 12075, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  7. Owens, David & Grossman , Zachary & Fackler , Ryan, 2012. "The Control Premium: A Preference for Payoff Autonomy," University of California at Santa Barbara, Economics Working Paper Series qt5bg845s1, Department of Economics, UC Santa Barbara.
  8. Noémi Berlin & Marie-Pierre Dargnies, 2012. "Linking Beliefs to Willingness to Compete," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00755660, HAL.
  9. Matthew Wiswall & Basit Zafar, 2011. "Belief updating among college students: evidence from experimental variation in information," Staff Reports 516, Federal Reserve Bank of New York.

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