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Overconfidence?

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  • Jean Pierre Benoit
  • Juan Dubra

Abstract

Many studies have shown that people display an apparent overconfidence. In particular, it is common for a majority of people to describe themselves as better-than-average. The literature takes for granted that this better-than-average effect is problematic. We argue, however, that, even accepting these studies on their own terms, there is nothing at all wrong with a strict majority of people rating themselves above the median.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 122247000000002142.

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Date of creation: 20 Apr 2008
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Handle: RePEc:cla:levarc:122247000000002142

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References

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  1. Botond Köszegi, 2006. "Ego Utility, Overconfidence, and Task Choice," Journal of the European Economic Association, MIT Press, MIT Press, vol. 4(4), pages 673-707, 06.
  2. Ledyard, John O., 1986. "The scope of the hypothesis of Bayesian equilibrium," Journal of Economic Theory, Elsevier, Elsevier, vol. 39(1), pages 59-82, June.
  3. Diego Garcia & Francesco Sangiorgi & Branko Urosevic, 2004. "Overconfidence and market efficiency with heterogeneous agents," Economics Working Papers 786, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1307, Cowles Foundation for Research in Economics, Yale University.
  5. Ján Zábojník, 2004. "A model of rational bias in self-assessments," Economic Theory, Springer, Springer, vol. 23(2), pages 259-282, January.
  6. Menkhoff, Lukas & Schmidt, Ulrich & Brozynski, Torsten, 2006. "The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence," European Economic Review, Elsevier, Elsevier, vol. 50(7), pages 1753-1766, October.
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  12. Peng, Lin & Xiong, Wei, 2006. "Investor attention, overconfidence and category learning," Journal of Financial Economics, Elsevier, Elsevier, vol. 80(3), pages 563-602, June.
  13. Chuang, Wen-I & Lee, Bong-Soo, 2006. "An empirical evaluation of the overconfidence hypothesis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(9), pages 2489-2515, September.
  14. Camerer, Colin, . "Progress and Behavioral Game Theory," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 1004, California Institute of Technology, Division of the Humanities and Social Sciences.
  15. Lu�s Santos-Pinto & Joel Sobel, 2005. "A Model of Positive Self-Image in Subjective Assessments," American Economic Review, American Economic Association, American Economic Association, vol. 95(5), pages 1386-1402, December.
  16. Markus Noth & Martin Weber, 2003. "Information Aggregation with Random Ordering: Cascades and Overconfidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(484), pages 166-189, January.
  17. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
  18. Ulrike Malmendier & Geoffrey Tate, 2004. "CEO Overconfidence and Corporate Investment," NBER Working Papers 10807, National Bureau of Economic Research, Inc.
  19. Francesco Squintani & Alvaro Sandroni, 2007. "Overconfidence, Insurance and Paternalism," Economics Discussion Papers, University of Essex, Department of Economics 643, University of Essex, Department of Economics.
  20. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 306-318, March.
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  22. 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, Elsevier, vol. 102(1), pages 42-58, January.
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Citations

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Cited by:
  1. Jean‐Pierre Benoît & Juan Dubra, 2011. "Apparent Overconfidence," Econometrica, Econometric Society, Econometric Society, vol. 79(5), pages 1591-1625, 09.
  2. Cruces, Guillermo & Perez Truglia, Ricardo & Tetaz, Martin, 2011. "Biased Perceptions of Income Distribution and Preferences for Redistribution: Evidence from a Survey Experiment," IZA Discussion Papers 5699, Institute for the Study of Labor (IZA).
  3. Juan Dubra & Rafael Di Tella, 2011. "Free to Punish? The American Dream and the harsh Treatment of Criminals," Documentos de Trabajo/Working Papers 1105, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  4. 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, Elsevier, vol. 80(3), pages 532-545.
  5. Néstor Gándelman & Rubén Hernández-Murillo, 2009. "The impact of inflation and unemployment on subjective personal and country evaluations," Review, Federal Reserve Bank of St. Louis, issue May, pages 107-126.
  6. Ravazzolo, Francesco & Røisland, Øistein, 2011. "Why do people place lower weight on advice far from their own initial opinion?," Economics Letters, Elsevier, Elsevier, vol. 112(1), pages 63-66, July.
  7. 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.
  8. Grieco, Daniela & Hogarth, Robin M., 2009. "Overconfidence in absolute and relative performance: The regression hypothesis and Bayesian updating," Journal of Economic Psychology, Elsevier, Elsevier, vol. 30(5), pages 756-771, October.
  9. Holger Herz & Daniel Schunk & Christian Zehnder, 2013. "How do judgmental overconfidence and overoptimism shape innovative activity?," ECON - Working Papers, Department of Economics - University of Zurich 106, Department of Economics - University of Zurich, revised Nov 2013.
  10. Merkle, Christoph & Weber, Martin, 2011. "True overconfidence: The inability of rational information processing to account for apparent overconfidence," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 116(2), pages 262-271.
  11. Benoît, Jean-Pierre & Dubra, Juan & Moore, Don, 2009. "Does the Better-Than-Average Effect Show That People Are Overconfident?: An Experiment," MPRA Paper 13168, University Library of Munich, Germany.
  12. Akiko Maruyama, 2010. "Learning about one’s own type in two-sided search," GRIPS Discussion Papers 10-26, National Graduate Institute for Policy Studies.

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