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Overconfidence?

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  • Benoît, Jean-Pierre
  • Dubra, Juan

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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File URL: http://mpra.ub.uni-muenchen.de/8879/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8879.

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Date of creation: 26 May 2008
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Handle: RePEc:pra:mprapa:8879

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Related research

Keywords: Overconfidence; Better than Average; Experimental Economics; Irrationality; Signalling Models;

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References

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  1. Francesco Squintani & Alvaro Sandroni, 2007. "Overconfidence, Insurance and Paternalism," Economics Discussion Papers 643, University of Essex, Department of Economics.
  2. Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Cowles Foundation Discussion Papers 1307, Cowles Foundation for Research in Economics, Yale University.
  3. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
  4. Ján Zábojník, 2004. "A model of rational bias in self-assessments," Economic Theory, Springer, vol. 23(2), pages 259-282, January.
  5. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
  6. Camerer, Colin, . "Progress and Behavioral Game Theory," Working Papers 1004, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Diego Garcia & Francesco Sangiorgi & Branko Urosevic, 2004. "Overconfidence and market efficiency with heterogeneous agents," Economics Working Papers 786, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Lu�s Santos-Pinto & Joel Sobel, 2005. "A Model of Positive Self-Image in Subjective Assessments," American Economic Review, American Economic Association, vol. 95(5), pages 1386-1402, December.
  9. Markus Noth & Martin Weber, 2003. "Information Aggregation with Random Ordering: Cascades and Overconfidence," Economic Journal, Royal Economic Society, vol. 113(484), pages 166-189, January.
  10. Ledyard, John O., . "The Scope of the Hypothesis of Bayesian Equilibrium," Working Papers 532, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Menkhoff, Lukas & Schmidt, Ulrich & Brozynski, Torsten, 2006. "The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence," European Economic Review, Elsevier, vol. 50(7), pages 1753-1766, October.
  12. 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.
  13. Lin Peng & Wei Xiong, 2005. "Investor Attention: Overconfidence and Category Learning," NBER Working Papers 11400, National Bureau of Economic Research, Inc.
  14. 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, vol. 102(1), pages 42-58, January.
  15. Brad M. Barber & Terrance Odean, 2001. "Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 261-292, February.
  16. Wang, F. Albert, 2001. "Overconfidence, Investor Sentiment, and Evolution," Journal of Financial Intermediation, Elsevier, vol. 10(2), pages 138-170, April.
  17. Kent D. Daniel, 2001. "Overconfidence, Arbitrage, and Equilibrium Asset Pricing," Journal of Finance, American Finance Association, vol. 56(3), pages 921-965, 06.
  18. Colin F. Camerer, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 167-188, Fall.
  19. Erik Hoelzl & Aldo Rustichini, 2005. "Overconfident: Do You Put Your Money On It?," Economic Journal, Royal Economic Society, vol. 115(503), pages 305-318, 04.
  20. Ulrike Malmendier & Geoffrey Tate, 2005. "CEO Overconfidence and Corporate Investment," Journal of Finance, American Finance Association, vol. 60(6), pages 2661-2700, December.
  21. Botond Köszegi, 2006. "Ego Utility, Overconfidence, and Task Choice," Journal of the European Economic Association, MIT Press, vol. 4(4), pages 673-707, 06.
  22. Chuang, Wen-I & Lee, Bong-Soo, 2006. "An empirical evaluation of the overconfidence hypothesis," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2489-2515, September.
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Citations

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Cited by:
  1. 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 0138, CEDLAS, Universidad Nacional de La Plata.
  2. Juan Dubra & Jean-Pierre Benoit, 2011. "Apparent Overconfidence," Documentos de Trabajo/Working Papers 1106, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  3. Ravazzolo, Francesco & Røisland, Øistein, 2011. "Why do people place lower weight on advice far from their own initial opinion?," Economics Letters, Elsevier, vol. 112(1), pages 63-66, July.
  4. Herz, Holger & Schunk, Daniel & Zehnder, Christian, 2014. "How do judgmental overconfidence and overoptimism shape innovative activity?," Games and Economic Behavior, Elsevier, vol. 83(C), pages 1-23.
  5. Markus M. Mobius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2011. "Managing Self-Confidence: Theory and Experimental Evidence," NBER Working Papers 17014, National Bureau of Economic Research, Inc.
  6. 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.
  7. Juan Dubra & Rafael Di Tella, 2011. "Free to Punish? The American Dream and the harsh Treatment of Criminals," Documentos de Trabajo/Working Papers 1105, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  8. 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, vol. 80(3), pages 532-545.
  9. Grieco, Daniela & Hogarth, Robin M., 2009. "Overconfidence in absolute and relative performance: The regression hypothesis and Bayesian updating," Journal of Economic Psychology, Elsevier, vol. 30(5), pages 756-771, October.
  10. 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, vol. 116(2), pages 262-271.
  11. Akiko Maruyama, 2010. "Learning about one’s own type in two-sided search," GRIPS Discussion Papers 10-26, National Graduate Institute for Policy Studies.
  12. 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.

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