Overconfidence in Economic Contests
AbstractThis paper studies an economic contest with two participants, who have overconfidence in their own relative abilities. We examine two different sources of overconfidence, overestimation of one's own ability and underestimation of the rival's ability, and compare the behavioral consequences of each situation with the correctly estimated case. The main result is that the former always induces the participants' aggressive behavior, while the latter does not.
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Date of creation: 11 Aug 2004
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Overconfidence; economic contest; relative ability; all-pay auction;
Find related papers by JEL classification:
- D - Microeconomics
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-30 (All new papers)
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