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An unlucky feeling: Overconfidence and noisy feedback

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  • Grossman, Zachary
  • Owens, David

Abstract

How do individuals’ beliefs respond to ego-relevant information? After receiving noisy, but unbiased performance feedback, participants in an experiment overestimate their own scores on a quiz and believe their feedback to be ‘unlucky’, estimating that it under-represents their score by 13%. However, they exhibit no such overconfidence in non-ego-relevant beliefs—in this case, estimates of others’ scores. Comparing subjects’ belief-updating to the Bayesian benchmark, we find that this ‘unlucky feeling’ is largely due to overconfident priors, with biased updating driving overconfidence only among the participants with the worst-calibrated beliefs. This suggests that social comparisons contribute to the biased response to feedback on relative performance observed in other studies. While feedback improves performance estimates, this learning does not translate into improved estimates of subsequent performances. This suggests that beliefs about ability are updated differently than beliefs about a particular performance, contributing to the persistence of overconfidence.

Suggested Citation

  • Grossman, Zachary & Owens, David, 2012. "An unlucky feeling: Overconfidence and noisy feedback," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 510-524.
  • Handle: RePEc:eee:jeborg:v:84:y:2012:i:2:p:510-524 DOI: 10.1016/j.jebo.2012.08.006
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    References listed on IDEAS

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    More about this item

    Keywords

    Overconfidence; Feedback; Overestimation; Absolute performance; Bayesian updating; Biased updating; Information processing; Learning transfer; Cross-game learning;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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