IDEAS home Printed from https://ideas.repec.org/p/osf/socarx/9jw7a.html
   My bibliography  Save this paper

Absolute vs. relative success: Why overconfidence is an inefficient equilibrium

Author

Listed:
  • Solda, Alice
  • Ke, Changxia
  • von Hippel, Bill
  • Page, Lionel

Abstract

Overconfidence is one of the most ubiquitous biases in the social sciences, but the evidence regarding its overall costs and benefits is mixed. To test the possibility that overconfidence might yield important relative benefits that offset its absolute costs, we conducted an experiment (N=298 university students) in which pairs of participants bargain over the unequal allocation of a prize that was earned via a joint effort. We manipulated confidence using a binary noisy signal to investigate the causal effect of negotiators’ beliefs about their relative contribution on the outcome of the negotiation. Our results provide evidence that high levels of confidence lead to relative benefits (how much one earns compared to one’s partner) but absolute costs (how much money one receives overall). These results suggest that overconfidence creates an inefficient equilibrium whereby overconfident negotiators benefit over their partners even as they bring about joint losses.

Suggested Citation

  • Solda, Alice & Ke, Changxia & von Hippel, Bill & Page, Lionel, 2021. "Absolute vs. relative success: Why overconfidence is an inefficient equilibrium," SocArXiv 9jw7a, Center for Open Science.
    • Handle: RePEc:osf:socarx:9jw7a
    DOI: 10.31219/osf.io/9jw7a
    as

    Download full text from publisher

    File URL: https://osf.io/download/604c2ff2474b1e012dca797d/
    Download Restriction: no
    File URL: https://libkey.io/10.31219/osf.io/9jw7a?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Gary Charness & David Masclet & Marie Claire Villeval, 2014. "The Dark Side of Competition for Status," Management Science, INFORMS, vol. 60(1), pages 38-55, January.
    3. Peter Schwardmann & Joël van der Weele, 2016. "Deception and Self-Deception," Tinbergen Institute Discussion Papers 16-012/I, Tinbergen Institute.
    4. Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-1343, December.
    5. Sarah F. Brosnan & Frans B. M. de Waal, 2003. "Monkeys reject unequal pay," Nature, Nature, vol. 425(6955), pages 297-299, September.
    6. Gary Charness & David Masclet & Marie Claire Villeval, 2014. "The Dark Side of Competition for Status (preprint)," Working Papers halshs-01090241, HAL.
    7. Alice Soldà & Changxia Ke & Lionel Page & William von Hippel, 2020. "Strategically delusional," Experimental Economics, Springer;Economic Science Association, vol. 23(3), pages 604-631, September.
    8. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    9. Chen, Daniel L. & Schonger, Martin & Wickens, Chris, 2016. "oTree—An open-source platform for laboratory, online, and field experiments," Journal of Behavioral and Experimental Finance, Elsevier, vol. 9(C), pages 88-97.
    10. Kyle, Albert S & Wang, F Albert, 1997. "Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?," Journal of Finance, American Finance Association, vol. 52(5), pages 2073-2090, December.
    11. Kramer, Roderick M. & Newton, Elizabeth & Pommerenke, Pamela L., 1993. "Self-Enhancement Biases and Negotiator Judgment: Effects of Self-Esteem and Mood," Organizational Behavior and Human Decision Processes, Elsevier, vol. 56(1), pages 110-133, October.
    12. Benos, Alexandros V., 1998. "Aggressiveness and survival of overconfident traders," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 353-383, September.
    13. White, Sally Blount & Neale, Margaret A., 1994. "The Role of Negotiator Aspirations and Settlement Expectancies in Bargaining Outcomes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 57(2), pages 303-317, February.
    14. Moore, Don A., 2004. "Myopic prediction, self-destructive secrecy, and the unexpected benefits of revealing final deadlines in negotiation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 94(2), pages 125-139, July.
    15. Dennie van Dolder & Martijn J. van den Assem & Colin F. Camerer & Richard H. Thaler, 2015. "Standing United or Falling Divided? High Stakes Bargaining in a TV Game Show," American Economic Review, American Economic Association, vol. 105(5), pages 402-407, May.
    16. Anderson, Cameron & Brion, Sebastien & Moore, Don A. & Kennedy, Jessica A., 2012. "A status-enhancement account of overconfidence," Institute for Research on Labor and Employment, Working Paper Series qt6s5812wf, Institute of Industrial Relations, UC Berkeley.
    17. Bock, Olaf & Baetge, Ingmar & Nicklisch, Andreas, 2014. "hroot: Hamburg Registration and Organization Online Tool," European Economic Review, Elsevier, vol. 71(C), pages 117-120.
    18. Thompson, Leigh & Loewenstein, George, 1992. "Egocentric interpretations of fairness and interpersonal conflict," Organizational Behavior and Human Decision Processes, Elsevier, vol. 51(2), pages 176-197, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cavalan, Quentin & de Gardelle, Vincent & Vergnaud, Jean-Christophe, 2022. "I did most of the work! Three sources of bias in bargaining with joint production," Journal of Economic Psychology, Elsevier, vol. 93(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Suchon, Rémi & Houser, Daniel, 2022. "Image spillovers in groups and misreporting," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 302-314.
    2. Jeroen Nieboer, 2022. "Positional enhancement in effort-based social comparisons," Discussion Papers 2022-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    3. Heifetz, Aviad & Segev, Ella, 2004. "The evolutionary role of toughness in bargaining," Games and Economic Behavior, Elsevier, vol. 49(1), pages 117-134, October.
    4. Dezső, Linda & Loewenstein, George, 2019. "Self-serving invocations of shared and asymmetric history in negotiations," European Economic Review, Elsevier, vol. 120(C).
    5. Tuncel, Ece & Kong, Dejun Tony & McLean Parks, Judi & van Kleef, Gerben A., 2020. "Face threat sensitivity in distributive negotiations: Effects on negotiator self-esteem and demands," Organizational Behavior and Human Decision Processes, Elsevier, vol. 161(C), pages 255-273.
    6. Suchon, Rémi & Villeval, Marie Claire, 2019. "The effects of status mobility and group identity on trust," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 430-463.
    7. Benistant, Julien & Galeotti, Fabio & Villeval, Marie Claire, 2022. "Competition, information, and the erosion of morals," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 148-163.
    8. Zhixin Dai & Fabio Galeotti & Marie Claire Villeval, 2018. "Cheating in the Lab Predicts Fraud in the Field: An Experiment in Public Transportation," Management Science, INFORMS, vol. 64(3), pages 1081-1100, March.
    9. Rustichini, Aldo & Villeval, Marie Claire, 2014. "Moral hypocrisy, power and social preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 10-24.
    10. Benistant, Julien & Villeval, Marie Claire, 2019. "Unethical behavior and group identity in contests," Journal of Economic Psychology, Elsevier, vol. 72(C), pages 128-155.
    11. Alice Soldà & Changxia Ke & Lionel Page & William von Hippel, 2020. "Strategically delusional," Experimental Economics, Springer;Economic Science Association, vol. 23(3), pages 604-631, September.
    12. Matthias Sutter & Jürgen Huber & Michael Kirchler & Matthias Stefan & Markus Walzl, 2020. "Where to look for the morals in markets?," Experimental Economics, Springer;Economic Science Association, vol. 23(1), pages 30-52, March.
    13. Sebastian J. Goerg & Sebastian Kube & Jonas Radbruch, 2019. "The Effectiveness of Incentive Schemes in the Presence of Implicit Effort Costs," Management Science, INFORMS, vol. 65(9), pages 4063-4078, September.
    14. Bartling, Björn & Özdemir, Yagiz, 2023. "The limits to moral erosion in markets: Social norms and the replacement excuse," Games and Economic Behavior, Elsevier, vol. 138(C), pages 143-160.
    15. Necker, Sarah & Paetzel, Fabian, 2023. "The effect of losing and winning on cheating and effort in repeated competitions," Journal of Economic Psychology, Elsevier, vol. 98(C).
    16. Yola Engler & Lionel Page, 2022. "Driving a hard bargain is a balancing act: how social preferences constrain the negotiation process," Theory and Decision, Springer, vol. 93(1), pages 7-36, July.
    17. Florian Lindner & Michael Kirchler & Stephanie Rosenkranz & Utz Weitzel, 2019. "Social Status and Risk-Taking in Investment Decisions," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2019_07, Max Planck Institute for Research on Collective Goods.
    18. Julien Benistant & Fabio Galeotti & Marie Claire Villeval, 2021. "The Distinct Impact of Information and Incentives on Cheating," Working Papers halshs-03110295, HAL.
    19. Sabrina Jeworrek & Joschka Waibel, 2021. "Unethical employee behavior against coworkers following unkind management treatment: An experimental analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1220-1234, July.
    20. Daniel A. Brent & Lata Gangadharan & Anca Mihut & Marie Claire Villeval, 2019. "Taxation, redistribution, and observability in social dilemmas," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(5), pages 826-846, October.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:osf:socarx:9jw7a. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: OSF (email available below). General contact details of provider: https://arabixiv.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.