IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_10860.html
   My bibliography  Save this paper

The Price of Identity: Overoptimism and Congruence Concerns

Author

Listed:
  • Kwabena Donkor
  • Lorenz Götte
  • Maximilian W. Müller
  • Eugen Dimant
  • Michael Kurschilgen

Abstract

We examine how identity influences economic decision-making, using field experiments on sports betting to measure belief distortions and identity-driven preferences. We find that people overestimate the likelihood of identity-aligned outcomes by 10–18%, and allocate 20% more of their betting budget to teams for which they have an affinity than to neutral teams. Using a structural model of portfolio allocation, we show that overoptimism accounts for 30%–44% of this investment gap, while the remaining 56%–70% stems from an aversion to betting against one’s favored team, even when such bets offer higher expected returns. Our estimates suggest that this aversion is equivalent to discounting gains from identity-incongruent outcomes by 17%–27%. We also provide evidence for the “identity-threat response” theory: when individuals perceive their identity as under threat – such as after their team’s poor performance – they strengthen their commitment, reinforcing identity-driven betting. Our findings raise policy concerns, as identity-driven biases may exacerbate financial harm not only in the rapidly expanding sports betting market but also in broader consumer and financial decision-making contexts where identity affects choices.

Suggested Citation

  • Kwabena Donkor & Lorenz Götte & Maximilian W. Müller & Eugen Dimant & Michael Kurschilgen, 2023. "The Price of Identity: Overoptimism and Congruence Concerns," CESifo Working Paper Series 10860, CESifo.
  • Handle: RePEc:ces:ceswps:_10860
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/cesifo1_wp10860.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lorenz Goette & David Huffman & Stephan Meier, 2006. "The Impact of Group Membership on Cooperation and Norm Enforcement: Evidence Using Random Assignment to Real Social Groups," American Economic Review, American Economic Association, vol. 96(2), pages 212-216, May.
    2. Carey K. Morewedge & Simone Tang & Richard P. Larrick, 2018. "Betting Your Favorite to Win: Costly Reluctance to Hedge Desired Outcomes," Management Science, INFORMS, vol. 64(3), pages 997-1014, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Diego Marino Fages, 2024. "Motivated Forecasts: Experimental Evidence from the Presidential Elections in Argentina," Discussion Papers 2024-08, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Adam Brandenburger & Paolo Ghirardato & Daniele Pennesi & Lorenzo Stanca, 2024. "Event Valence and Subjective Probability," Carlo Alberto Notebooks 717 JEL Classification: D, Collegio Carlo Alberto.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Grimalda, Gianluca & Buchan, Nancy & Brewer, Marilynn, 2015. "Globalization, Social Identity, and Cooperation: An Experimental Analysis of Their Linkages and Effects," Global Cooperation Research Papers 10, University of Duisburg-Essen, Käte Hamburger Kolleg / Centre for Global Cooperation Research (KHK/GCR21).
    2. Karla Hoff & Mayuresh Kshetramade & Ernst Fehr, 2011. "Caste and Punishment: the Legacy of Caste Culture in Norm Enforcement," Economic Journal, Royal Economic Society, vol. 121(556), pages 449-475, November.
    3. Nattavudh Powdthavee & Yohanes E Riyanto & Erwin C L Wong & Jonathan X W Yeo & Qi Yu Chan, 2021. "When face masks signal social identity: Explaining the deep face-mask divide during the COVID-19 pandemic," PLOS ONE, Public Library of Science, vol. 16(6), pages 1-15, June.
    4. Bernard, Mark & Hett, Florian & Mechtel, Mario, 2016. "Social identity and social free-riding," European Economic Review, Elsevier, vol. 90(C), pages 4-17.
    5. Mechtel, Mario & Hett, Florian & Kröll, Markus, 2014. "Endogenous Social Identity and Group Choice," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100307, Verein für Socialpolitik / German Economic Association.
    6. Chavanne, David & McCabe, Kevin & Paganelli, Maria Pia, 2011. "Whose money is it anyway? Ingroups and distributive behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 77(1), pages 31-39, January.
    7. Fehr, Ernst & Glätzle-Rützler, Daniela & Sutter, Matthias, 2013. "The development of egalitarianism, altruism, spite and parochialism in childhood and adolescence," European Economic Review, Elsevier, vol. 64(C), pages 369-383.
    8. Benjamin Enke & Ricardo Rodríguez-Padilla & Florian Zimmermann, 2019. "Moral Universalism: Measurement and Heterogeneity," CESifo Working Paper Series 7921, CESifo.
    9. Sun-Ki Chai & Dolgorsuren Dorj & Katerina Sherstyuk, 2018. "Cultural Values and Behavior in Dictator, Ultimatum, and Trust Games: An Experimental Study," Research in Experimental Economics, in: Experimental Economics and Culture, volume 20, pages 89-166, Emerald Group Publishing Limited.
    10. Dickinson, David L. & Masclet, David & Peterle, Emmanuel, 2018. "Discrimination as favoritism: The private benefits and social costs of in-group favoritism in an experimental labor market," European Economic Review, Elsevier, vol. 104(C), pages 220-236.
    11. Rémi Suchon & Marie Claire Villeval, 2017. "Does upward mobility harm trust?," Post-Print halshs-01659021, HAL.
    12. Ernst Fehr, 2009. "On The Economics and Biology of Trust," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 235-266, 04-05.
    13. Florian Diekert & Tillmann Eymess & Joseph Luomba & Israel Waichman, 2022. "The Creation of Social Norms under Weak Institutions," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(6), pages 1127-1160.
    14. Taha Movahedi, 2020. "Group Uncertainty and Social Preferences," Working Papers in Economics & Finance 2020-07, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    15. Erik Lindqvist & Robert Östling, 2013. "Identity and redistribution," Public Choice, Springer, vol. 155(3), pages 469-491, June.
    16. Anderberg, Dan & Morsink, Karlijn, 2020. "The introduction of formal insurance and its effect on redistribution," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 22-45.
    17. Lohse, Johannes & McDonald, Rebecca, 2021. "Absolute groupishness and the demand for information," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242454, Verein für Socialpolitik / German Economic Association.
    18. Yuning Tang & Qinxin Guo & Junyi Shen, 2022. "Revisiting the Effects of Group Identity and Information Diversity in a Leader-member Public Goods Experiment," Discussion Paper Series DP2022-35, Research Institute for Economics & Business Administration, Kobe University.
    19. Manuel Muñoz-Herrera & Nikos Nikiforakis, 2023. "Experimental evidence shows that ulterior motive attribution drives counter-punishment," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 9(2), pages 193-206, December.
    20. Drouvelis, Michalis & Malaeb, Bilal & Vlassopoulos, Michael & Wahba, Jackline, 2021. "Cooperation in a fragmented society: Experimental evidence on Syrian refugees and natives in Lebanon," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 176-191.

    More about this item

    Keywords

    identity; investments; experiment;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • Z10 - Other Special Topics - - Cultural Economics - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_10860. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.