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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 completely 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 www.najecon.org in its series NajEcon Working Paper Reviews with number 122247000000002148.

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Date of creation: 05 May 2008
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Handle: RePEc:cla:najeco:122247000000002148

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References

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  1. Ulrike Malmendier & Geoffrey Tate, 2004. "CEO Overconfidence and Corporate Investment," NBER Working Papers 10807, National Bureau of Economic Research, Inc.
  2. Antonio Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Yale School of Management Working Papers, Yale School of Management ysm211, Yale School of Management, revised 01 Nov 2003.
  3. 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.
  4. Erik Hoelzl & Aldo Rustichini, 2005. "Overconfident: Do You Put Your Money On It?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(503), pages 305-318, 04.
  5. Kent D. Daniel, 2001. "Overconfidence, Arbitrage, and Equilibrium Asset Pricing," Journal of Finance, American Finance Association, American Finance Association, vol. 56(3), pages 921-965, 06.
  6. Diego García & Francesco Sangiorgi & Branko Urošević, 2007. "Overconfidence and Market Efficiency with Heterogeneous Agents," Economic Theory, Springer, Springer, vol. 30(2), pages 313-336, February.
  7. 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.
  8. Peng, Lin & Xiong, Wei, 2006. "Investor attention, overconfidence and category learning," Journal of Financial Economics, Elsevier, Elsevier, vol. 80(3), pages 563-602, June.
  9. Wang, F. Albert, 2001. "Overconfidence, Investor Sentiment, and Evolution," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 10(2), pages 138-170, April.
  10. Brad M. Barber & Terrance Odean, 2001. "Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(1), pages 261-292, February.
  11. 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.
  12. Alvaro Sandroni & Francesco Squintani, 2007. "Overconfidence, Insurance, and Paternalism," American Economic Review, American Economic Association, American Economic Association, vol. 97(5), pages 1994-2004, December.
  13. Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2004. "The Impact of Experience on Risk Taking, Overconfidence, and Herding of Fund Managers: Complementary Survey Evidence," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-292, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  14. Bruno Biais & Denis Hilton & Karine Mazurier & Sébastien Pouget, 2005. "Judgemental Overconfidence, Self-Monitoring, and Trading Performance in an Experimental Financial Market," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 287-312.
  15. 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.
  16. 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.
  17. 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.
  18. Ján Zábojník, 2004. "A model of rational bias in self-assessments," Economic Theory, Springer, Springer, vol. 23(2), pages 259-282, January.
  19. Ledyard, John O., . "The Scope of the Hypothesis of Bayesian Equilibrium," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 532, California Institute of Technology, Division of the Humanities and Social Sciences.
  20. Colin F. Camerer, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(4), pages 167-188, Fall.
  21. 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.
  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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Cited by:
  1. Markus Mobius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2011. "Managing self-confidence: theory and experimental evidence," Working Papers, Federal Reserve Bank of Boston 11-14, Federal Reserve Bank of Boston.
  2. 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.
  3. Guillermo Cruces & Ricardo Pérez Truglia & Martín Tetaz, 2012. "Biased Perceptions of Income Distribution and Preferences for Redistribution: Evidence from a Survey Experiment," CEDLAS, Working Papers, CEDLAS, Universidad Nacional de La Plata 0138, CEDLAS, Universidad Nacional de La Plata.
  4. 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.
  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, Elsevier, vol. 80(3), pages 532-545.
  6. Juan Dubra & Jean-Pierre Benoit, 2011. "Apparent Overconfidence," Documentos de Trabajo/Working Papers, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo. 1106, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  7. Akiko Maruyama, 2010. "Learning about one’s own type in two-sided search," GRIPS Discussion Papers 10-26, National Graduate Institute for Policy Studies.
  8. 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.
  9. Rafael Di Tella & Juan Dubra, 2011. "Free to Punish? The American Dream and the Harsh Treatment of Criminals," NBER Working Papers 17309, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
  12. 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.

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