When "hope springs eternal": The role of chance in risk taking
AbstractIn 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.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1131.
Date of creation: Dec 2008
Date of revision: Jun 2009
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Web page: http://www.econ.upf.edu/
Skill; chance; overconfidence; optimism; competition; risk taking; gender differences;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-10 (All new papers)
- NEP-CBE-2009-01-10 (Cognitive & Behavioural Economics)
- NEP-ENT-2009-01-10 (Entrepreneurship)
- NEP-HRM-2009-01-10 (Human Capital & Human Resource Management)
- NEP-LAB-2009-01-10 (Labour Economics)
- NEP-UPT-2009-01-10 (Utility Models & Prospect Theory)
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- Cowley, Elizabeth, 2013. "Forgetting the anxiety: Gamblers' reactions to outcome uncertainty," Journal of Business Research, Elsevier, vol. 66(9), pages 1591-1597.
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