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An Unlucky Feeling: Overconfidence and Noisy Feedback

  • Grossman, Zachary
  • Owens, David

How does overconfidence arise and how does it persist in the face of experience and feedback? In an experimental setting, we examine how individuals’ beliefs about their own performance on a quiz react to noisy, but unbiased feedback. In a control treatment, each participant expresses her beliefs about another participant’s performance, rather than her own. On average, they express accurate posteriors about others’ scores, but they overestimate their own score, believing themselves to have received ‘unlucky’ feedback. However, this driven by overconfident priors, as opposed to biased information processing. We also find that, while feedback improves estimates about the performance on which it is based, this learning does not translate into improved estimates of related performances. This suggests that people use performance feedback to update their beliefs about their ability differently than they do to update their beliefs about their performance, which may contribute to the persistence of overconfidence.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt13r2f3gt.

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Date of creation: 11 Nov 2010
Date of revision:
Handle: RePEc:cdl:ucsbec:qt13r2f3gt
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  1. Markus M. Mobius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2011. "Managing Self-Confidence: Theory and Experimental Evidence," NBER Working Papers 17014, National Bureau of Economic Research, Inc.
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  3. Ertac, Seda, 2011. "Does self-relevance affect information processing? Experimental evidence on the response to performance and non-performance feedback," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 532-545.
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  8. David J. Cooper & John H. Kagel, 2009. "The Role of Context and Team Play in Cross-Game Learning," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1101-1139, 09.
  9. Erik Hoelzl & Aldo Rustichini, 2005. "Overconfident: Do You Put Your Money On It?," Economic Journal, Royal Economic Society, vol. 115(503), pages 305-318, 04.
  10. David Cooper & John H. Kagel, 2003. "Lessons Learned: Generalizing Learning Across Games," American Economic Review, American Economic Association, vol. 93(2), pages 202-207, May.
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  12. David Cooper & John Kagel, 2008. "Learning and transfer in signaling games," Economic Theory, Springer, vol. 34(3), pages 415-439, March.
  13. Burks, Stephen V. & Carpenter, Jeffrey P. & Götte, Lorenz & Rustichini, Aldo, 2010. "Overconfidence is a Social Signaling Bias," IZA Discussion Papers 4840, Institute for the Study of Labor (IZA).
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