IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

On the Evolution of Overconfidence and Entrepreneurs

  • Bernardo, Antonio
  • Welch, Ivo

This paper explains why seemingly irrational overconfident behavior can persist. Information aggregation is poor in groups in which most individuals herd. By ignoring the herd, the actions of overconfident individuals (“entrepreneursâ€) convey their private information. However, entrepreneurs make mistakes and thus die more frequently. The socially optimal proportion of entrepreneurs trades off the positive information externality against high attrition rates of entrepreneurs, and depends on the size of the group, on the degree of overconfidence, and on the accuracy of individuals’ private information. The stationary distribution trades off the fitness of the group against the fitness of overconfident individuals.

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.escholarship.org/uc/item/6668s4pz.pdf;origin=repeccitec
Download Restriction: no

Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number qt6668s4pz.

as
in new window

Length:
Date of creation: 01 Jan 1997
Date of revision:
Handle: RePEc:cdl:anderf:qt6668s4pz
Contact details of provider: Postal: 110 Westwood Plaza, Los Angeles, CA. 90095
Web page: http://www.escholarship.org/repec/anderson_fin/

More information through EDIRC

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. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
  2. Hirshleifer, Jack, 1977. "Economics from a Biological Viewpoint," Journal of Law and Economics, University of Chicago Press, vol. 20(1), pages 1-52, April.
  3. Hirshleifer, David & Luo, Guo Ying, 2000. "On the Survival of Overconfident Traders in a Competitive Securities Market," MPRA Paper 15347, University Library of Munich, Germany.
  4. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
  5. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann,, . "The Survival of Noise Traders in Financial Markets," J. Bradford De Long's Working Papers _123, University of California at Berkeley, Economics Department.
  6. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-62, December.
  7. J. Maynard Smith, 2010. "The Theory of Games and Evolution of Animal Conflicts," Levine's Working Paper Archive 448, David K. Levine.
  8. Jianbo Zhang, 1997. "Strategic Delay and the Onset of Investment Cascades," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 188-205, Spring.
  9. Becker, Gary S, 1976. "Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology," Journal of Economic Literature, American Economic Association, vol. 14(3), pages 817-26, September.
  10. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  11. Busenitz, Lowell W. & Barney, Jay B., 1997. "Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making," Journal of Business Venturing, Elsevier, vol. 12(1), pages 9-30, January.
  12. Manove, M., 1995. "Entrepreneurs, Optimism, and the Competitive Edge," UFAE and IAE Working Papers 296.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  13. Hirshlifer, David & Rassmusen, Eric, 1989. "Cooperation in a repeated prisoners' dilemma with ostracism," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 87-106, August.
  14. KENT D. DANIEL & David Hirshleifer & AVANIDHAR SUBRAHMANYAM, 2004. "A Theory of Overconfidence, Self-Attribution, and Security Market Under- and Over-reactions," Finance 0412006, EconWPA.
  15. Eshel, Ilan & Samuelson, Larry & Shaked, Avner, 1998. "Altruists, Egoists, and Hooligans in a Local Interaction Model," American Economic Review, American Economic Association, vol. 88(1), pages 157-79, March.
  16. Abarbanell, Jeffrey S & Bernard, Victor L, 1992. " Tests of Analysts' Overreaction/Underreaction to Earnings Information as an Explanation for Anomalous Stock Price Behavior," Journal of Finance, American Finance Association, vol. 47(3), pages 1181-207, July.
  17. Bradford Cornell & Richard Roll, 1981. "Strategies for Pairwise Competition in Markets and Organizations," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 201-213, Spring.
  18. Waldman, Michael, 1994. "Systematic Errors and the Theory of Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 482-97, June.
  19. Jack Hirshleifer, 1977. "Economics from a Biological Viewpoint," UCLA Economics Working Papers 087, UCLA Department of Economics.
  20. Cooper, Arnold C. & Woo, Carolyn Y. & Dunkelberg, William C., 1988. "Entrepreneurs' perceived chances for success," Journal of Business Venturing, Elsevier, vol. 3(2), pages 97-108.
  21. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, June.
  22. repec:att:wimass:9612 is not listed on IDEAS
  23. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
  24. Eshel, I. & Samuelson, L. & Shaked, A., 1996. "Altruists, Egoists and Hooligans in a Local Interaction Model," Working papers 9612r, Wisconsin Madison - Social Systems.
  25. Wang, F. Albert, 2001. "Overconfidence, Investor Sentiment, and Evolution," Journal of Financial Intermediation, Elsevier, vol. 10(2), pages 138-170, April.
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:cdl:anderf:qt6668s4pz. 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: (Lisa Schiff)

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.