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Know Thyself: Competence and Self-awareness

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  • Paul Ferraro

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Abstract

Economic analysis of asymmetric information typically starts with the assumption that individuals know more about their own characteristics than outside observers. This assumption implies that individuals can accurately assess their own competence in a given domain. However, individuals can only judge their competence if they are sufficiently competent. Results from field experiments contradict predictions from economic theories that assume self-aware agents, but are consistent with predictions from theories that incorporate a positive correlation between competence and self-awareness in a given domain. This correlation explains some of the overconfidence observed among economic agents and implies a structure on decision errors that can be exploited to make novel predictions in important areas of economics. Copyright International Atlantic Economic Society 2010

Suggested Citation

  • Paul Ferraro, 2010. "Know Thyself: Competence and Self-awareness," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 38(2), pages 183-196, June.
  • Handle: RePEc:kap:atlecj:v:38:y:2010:i:2:p:183-196
    DOI: 10.1007/s11293-010-9226-2
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    File URL: http://hdl.handle.net/10.1007/s11293-010-9226-2
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    References listed on IDEAS

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    1. Gervais, Simon & Odean, Terrance, 2001. "Learning to be Overconfident," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 1-27.
    2. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    3. Hvide, Hans K., 2002. "Pragmatic beliefs and overconfidence," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 15-28, May.
    4. 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.
    5. Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 301-330, September.
    6. Tomas Philipson & John Cawley, 1999. "An Empirical Examination of Information Barriers to Trade in Insurance," American Economic Review, American Economic Association, vol. 89(4), pages 827-846, September.
    7. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, vol. 89(5), pages 1279-1298, December.
    8. 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.
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    Citations

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    Cited by:

    1. Schlösser, Thomas & Dunning, David & Johnson, Kerri L. & Kruger, Justin, 2013. "How unaware are the unskilled? Empirical tests of the “signal extraction” counterexplanation for the Dunning–Kruger effect in self-evaluation of performance," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 85-100.
    2. repec:eee:wdevel:v:99:y:2017:i:c:p:498-517 is not listed on IDEAS
    3. Guest, Jon & Riegler, Robert, 2017. "Learning by doing: Do economics students self-evaluation skills improve?," International Review of Economics Education, Elsevier, vol. 24(C), pages 50-64.
    4. Brookins, Philip & Lucas, Adriana & Ryvkin, Dmitry, 2014. "Reducing within-group overconfidence through group identity and between-group confidence judgments," Journal of Economic Psychology, Elsevier, vol. 44(C), pages 1-12.
    5. Ryvkin, Dmitry & Krajč, Marian & Ortmann, Andreas, 2012. "Are the unskilled doomed to remain unaware?," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 1012-1031.

    More about this item

    Keywords

    Overconfidence; Competence; Asymmetric information; Gender; Economic experiment; C93; D82;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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