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Know Thyself: Incompetence and Overconfidence

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Author Info
Paul J. Ferraro
Abstract

Economic analyses of asymmetric information typically start with the assumption that individuals know more about their own characteristics than outside observers. This assumption implies that individuals can accurately assess their own competence in a given domain. However, individuals can only judge their competence if they are sufficiently competent. The relationship between competence and self-awareness explains a great deal of the overconfidence observed among economic agents. More specifically, overconfidence is inversely proportional to competence. Through a series of experiments and analyses of field data, the link between incompetence and overconfidence is confirmed and its implications for economic theory are explored.

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Paper provided by The Field Experiments Website in its series Framed Field Experiments with number 0025.

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Length: 48 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:feb:framed:0025

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Related research
Keywords: overconfidence; competence; asymmetric information; gender; economic experiment;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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