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A Model Of Overconfidence

  • Bruce A. Weinberg

People use information about their ability to choose tasks. If more challenging tasks provide more accurate information about ability, people who care about and who are risk averse over their perception of their ability will choose tasks that are not sufficiently challenging. Moderate overestimation of ability and overestimation of the precision of initial information leads people to choose tasks that raise expected output (and utility); however, extreme overconfidence leads people to undertake tasks that are excessively challenging. Consistent with our results, psychologists find that moderate overconfidence is both pervasive and advantageous. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Asia Pty Ltd

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Article provided by Wiley Blackwell in its journal Pacific Economic Review.

Volume (Year): 14 (2009)
Issue (Month): 4 (October)
Pages: 502-515

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Handle: RePEc:bla:pacecr:v:14:y:2009:i:4:p:502-515
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  1. 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 2073-90, December.
  2. Waldman, Michael, 1994. "Systematic Errors and the Theory of Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 482-97, June.
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