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Can wishful thinking explain evidence for overconfidence? An experiment on belief updating

Author

Listed:
  • Uri Gneezy
  • Moshe Hoffman
  • Mark A Lane
  • John A List
  • Jeffrey A Livingston
  • Michael J Seiler

Abstract

Recent theoretical work shows that the better-than-average effect, where a majority believes their ability to be better than average, can be perfectly consistent with Bayesian updating. However, later experiments that account for this theoretical advance still find behavior consistent with overconfidence. The literature notes that overoptimism can be caused by either overconfidence (optimism about performance), wishful thinking (optimism about outcomes), or both. To test whether the better-than-average effect might be explained by wishful thinking instead of overconfidence, we conduct an experiment that is similar to those used in the overconfidence literature, but removes performance as a potential channel. We find evidence that wishful thinking might explain overconfidence only among the most optimistic subjects and that conservatism is possibly more of a worry; if unaccounted for, overconfidence might be underestimated.

Suggested Citation

  • Uri Gneezy & Moshe Hoffman & Mark A Lane & John A List & Jeffrey A Livingston & Michael J Seiler, 2023. "Can wishful thinking explain evidence for overconfidence? An experiment on belief updating," Oxford Economic Papers, Oxford University Press, vol. 75(1), pages 35-54.
    • Handle: RePEc:oup:oxecpp:v:75:y:2023:i:1:p:35-54.
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    File URL: http://hdl.handle.net/10.1093/oep/gpac015
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    Cited by:

    1. Emmanuel Adu Boahen & Paul Adjei Kwakwa & Justice Boateng Dankwah, 2022. "Does gender make a difference in the performance of a small business enterprise? Evidence from a household survey data from Ghana," SN Business & Economics, Springer, vol. 2(9), pages 1-26, September.
    2. Pedro Gonzalez-Fernandez, 2024. "Belief Bias Identification," Papers 2404.09297, arXiv.org, revised Nov 2024.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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