IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Overconfidence in Forecasts of Own Performance: An Experimental Study

Listed author(s):
  • Jeremy Clark
  • Lana Friesen

Systematic overconfidence by individuals regarding their abilities and prospects could have important economic consequences. But overconfidence has received little direct testing within economics. We use experiments to test for overconfidence in people's forecasts of their absolute or relative performance in two unfamiliar tasks. Given their chosen effort, participants have incentives to forecast accurately, with opportunities for feedback, learning and revision. Forecasts are evaluated at aggregate and individual levels. We find zero mean error or underconfidence far more prevalent than overconfidence. Underconfidence is greatest in forecasts of absolute rather than relative performance and among those using greater effort quantity or quality. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2008.02211.x
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 119 (2009)
Issue (Month): 534 (01)
Pages: 229-251

as
in new window

Handle: RePEc:ecj:econjl:v:119:y:2009:i:534:p:229-251
Contact details of provider: Postal:
Office of the Secretary-General, Rm E35, The Bute Building, Westburn Lane, St Andrews, KY16 9TS, UK

Phone: +44 1334 462479
Web page: http://www.res.org.uk/
Email:


More information through EDIRC

Order Information: Web: http://www.blackwellpublishers.co.uk/asp/journal.asp?ref=0013-0133

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window

  1. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
  2. Ulrike Malmendier & Geoffrey Tate, 2004. "CEO Overconfidence and Corporate Investment," NBER Working Papers 10807, National Bureau of Economic Research, Inc.
  3. Grether, David M., 1992. "Testing bayes rule and the representativeness heuristic: Some experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 17(1), pages 31-57, January.
  4. Jeff Dominitz, 1998. "Earnings Expectations, Revisions, And Realizations," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 374-388, August.
  5. Olivier Compte & Andrew Postlewaite, 2003. "Confidence-Enhanced Performance," PIER Working Paper Archive 03-009, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  6. Manove, M. & Padilla, A.J., 1997. "Banking (Conservatively) with Optimists," Papers 9718, Centro de Estudios Monetarios Y Financieros-.
  7. Das, J.W.M. & van Soest, A.H.O., 1996. "A panel data model for subjective information on household income growth," Other publications TiSEM a6683363-b5a6-4fe7-b062-7, Tilburg University, School of Economics and Management.
  8. J. Dominitz & C. F. Manski, "undated". "Using expectations data to study subjective income expectations," Institute for Research on Poverty Discussion Papers 1050-94, University of Wisconsin Institute for Research on Poverty.
  9. Daniel S. Hamermesh, 1982. "Expectations, Life Expectancy, and Economic Behavior," NBER Working Papers 0835, National Bureau of Economic Research, Inc.
  10. Daniel S. Hamermesh, 1985. "Expectations, Life Expectancy, and Economic Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 389-408.
  11. Smith, V. Kerry & Taylor, Donald H., Jr. & Sloan, Frank A., 2000. "Longevity Expectations and Death: Can People Predict Their Own Demise?," Working Papers 00-15, Duke University, Department of Economics.
  12. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," NBER Working Papers 9586, National Bureau of Economic Research, Inc.
  13. Williams, Arlington W, 1987. "The Formation of Price Forecasts in Experimental Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 1-18, February.
  14. Joyce E. Berg & Lane A. Daley & John W. Dickhaut & John R. O'Brien, 1986. "Controlling Preferences for Lotteries on Units of Experimental Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 281-306.
  15. 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.
  16. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 261-292.
  17. Juan Dubra, 2004. "Optimism and Overconfidence in Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 198-218, January.
  18. Roland Bénabou & Jean Tirole, 2002. "Self-Confidence and Personal Motivation," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 871-915.
  19. Das, J.W.M. & van Soest, A.H.O., 1995. "Expected and realized income changes : Evidence from the Dutch socio-economic panel," Discussion Paper 1995-52, Tilburg University, Center for Economic Research.
  20. Julian Jamison & Dean S. Karlan, 2005. "When Curiosity Kills the Profits: an Experimental Examination," Experimental 0505001, EconWPA.
  21. David Dickinson, 2003. "The Chilling Effect Of Optimism: The Case of Final-Offer Arbitration," Working Papers 2003-01, Utah State University, Department of Economics.
  22. Reinhard Selten & Abdolkarim Sadrieh & Klaus Abbink, 1999. "Money Does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse," Theory and Decision, Springer, vol. 46(3), pages 213-252, June.
  23. Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
  24. Huck, Steffen & Weizsacker, Georg, 2002. "Do players correctly estimate what others do? : Evidence of conservatism in beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 47(1), pages 71-85, January.
  25. Viscusi, W Kip, 1990. "Do Smokers Underestimate Risks?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1253-1269, December.
  26. repec:tiu:tiutis:bdbe10dd-649c-4521-ab28-7aa051a5bf82 is not listed on IDEAS
  27. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
  28. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
  29. Sonnemans, Joep & Schram, Arthur & Offerman, Theo, 1998. "Public good provision and public bad prevention: The effect of framing," Journal of Economic Behavior & Organization, Elsevier, vol. 34(1), pages 143-161, January.
  30. McKelvey, Richard D & Page, Talbot, 1990. "Public and Private Information: An Experimental Study of Information Pooling," Econometrica, Econometric Society, vol. 58(6), pages 1321-1339, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecj:econjl:v:119:y:2009:i:534:p:229-251. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.