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True overconfidence, revealed through actions: An experiment

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  • Stephen L. Cheung

    (The University of Sydney)

  • Lachlan Johnstone

    (The University of Sydney)

Abstract

We design an experiment to infer true overconfidence in relative ability through actions, as opposed to reported beliefs. Subjects choose how to invest earnings from a skill task where the returns depend either solely upon risk, or both risk and relative placement, enabling joint estimation of individual risk preferences and implied subjective beliefs of placing in the top half. We find evidence of aggregate overconfidence only in a treatment that receives minimal feedback on performance in a trial round. In treatments that receive more detailed feedback aggregate overconfidence is not observed, however identifiable segments of over- and underconfident individuals persist.

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  • Stephen L. Cheung & Lachlan Johnstone, 2025. "True overconfidence, revealed through actions: An experiment," Journal of Risk and Uncertainty, Springer, vol. 70(2), pages 171-199, April.
    • Handle: RePEc:kap:jrisku:v:70:y:2025:i:2:d:10.1007_s11166-025-09452-y
    DOI: 10.1007/s11166-025-09452-y
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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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