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Learning and self-confidence in contests


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  • Krähmer, Daniel
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    The paper studies a repeated contest when contestants are uncertain about their true abilities. A favourable belief about one’s own ability (confidence) stimulates effort and increases the likelihood of success. Success, in turn, reinforces favourable beliefs. We consider a specific example in which this reinforcement mechanism implies that, with positive probability, players fail to learn their true abilities, and one player may eventually win the contest forever. As a consequence, persistent inequality arises, and the worse player may eventually prevail. Furthermore, confidence is self-serving in that it increases a player’s utility and the likelihood to be the long-run winner. -- Das Papier betrachtet einen wiederholten Wettkampf, in dem die Wettkämpfer ihre wahren Fähigkeiten nicht kennen. Wettkämpfer mit einer hohen Einschätzung ihrer eigenen Fähigkeiten (Selbstvertrauen) zeigen eine höhere Einsatzbereitschaft und haben damit bessere Erfolgsaussichten. Umgekehrt verstärken Erfolge das Selbstvertrauen. Wir betrachten ein einfaches Beispiel, in dem dieser sich selbst verstärkende Effekt dazu führt, dass die Spieler mit positiver Wahrscheinlichkeit über ihre wahren Fähigkeiten im Ungewissen bleiben, und dass ein Spieler schließlich für immer als Sieger aus dem Wettkampf hervorgeht. Als Folge ergeben sich dauerhafte Ungleichheiten, wobei es der tatsächlich unfähigere Spieler sein kann, der langfristig überlegen ist. Darüber hinaus zeigt sich, dass Selbstvertrauen sowohl den Nutzen eines Spielers als auch die Erfolgswahrscheinlichkeit, der schließlich überlegene Spieler zu sein, erhöht.

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    Bibliographic Info

    Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number SP II 2003-10.

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    Date of creation: 2003
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    Handle: RePEc:zbw:wzbmpg:spii200310

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    Keywords: Contest; self-confidence; belief reinforcement; incomplete learning; dynamic programming;

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    1. Van den Steen, Eric, 2002. "Skill or Luck? Biases of Rational Agents," Working papers 4255-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. William A. Darity & Arthur H. Goldsmith, 1996. "Social Psychology, Unemployment and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 121-140, Winter.
    3. De Meza, D. & Southey, C., 1995. "The Borrower's Curse: Optimism, Finance and Enterpreneurship," Discussion Papers, Exeter University, Department of Economics 9502, Exeter University, Department of Economics.
    4. Martin W. Cripps & Godfrey Keller & Sven Rady, 2002. "Strategic Experimentation: The Case of Poisson Bandits," CESifo Working Paper Series 737, CESifo Group Munich.
    5. Manove, M. & Padilla, A.J., 1997. "Banking (Conservatively) with Optimists," Papers, Centro de Estudios Monetarios Y Financieros- 9718, Centro de Estudios Monetarios Y Financieros-.
    6. Hvide, H.K., 1999. "Tournament Rewards and Risk Taking," Papers, Tel Aviv 32-99, Tel Aviv.
    7. Manove, M., 1995. "Entrepreneurs, Optimism, and the Competitive Edge," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 296.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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    Cited by:
    1. Hayward, Mathew L.A. & Forster, William R. & Sarasvathy, Saras D. & Fredrickson, Barbara L., 2010. "Beyond hubris: How highly confident entrepreneurs rebound to venture again," Journal of Business Venturing, Elsevier, vol. 25(6), pages 569-578, November.


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