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When "hope springs eternal": The role of chance in risk taking

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Abstract

In most naturally occurring situations, success depends on both skill and chance. We contrast experimental market entry decisions where payoffs depend on skill as opposed to combinations of skill and chance. Our data show differential attitudes toward chance by those whose self-assessed skills are low and high. Making chance more important induces greater optimism for the former who start taking more risk, while the latter maintain a belief that high levels of skill are sufficient to overcome the vagaries of chance. Finally, although we observed “excess entry” (i.e., too many participants entered markets), this could not be attributed to overconfidence.

Suggested Citation

  • Natalia Karelaia & Robin Hogarth, 2008. "When "hope springs eternal": The role of chance in risk taking," Economics Working Papers 1131, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2009.
    • Handle: RePEc:upf:upfgen:1131
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    Cited by:

    1. Cowley, Elizabeth, 2013. "Forgetting the anxiety: Gamblers' reactions to outcome uncertainty," Journal of Business Research, Elsevier, vol. 66(9), pages 1591-1597.

    More about this item

    Keywords

    Skill; chance; overconfidence; optimism; competition; risk taking; gender differences;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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