In a standard search model I relax the assumption that agents know the distribution of offers and characterize the behavioral and welfare consequences of overconfidence. Optimistic individuals search longer if they are equally stubborn and high offers are good news. Otherwise, the pessimists search longer. The welfare of unbiased individuals is larger than that of overconfident decision makers if the latter's biases are large and searchers stubborn. Otherwise, the overconfident may be better off. Finally, I give a testable implication of overconfidence and discuss applications and policy issues.
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number
99-10.
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