Overconfidence in Search
In a standard search model I relax the assumption that agents know the distribution of offers and characterize the behavioral and welfare consequences of overconfidence. Optimistic individuals search longer if they are equally stubborn and high offers are good news. Otherwise, the pessimists search longer. The welfare of unbiased individuals is larger than that of overconfident decision makers if the latter's biases are large and searchers stubborn. Otherwise, the overconfident may be better off. Finally, I give a testable implication of overconfidence and discuss applications and policy issues.
|Date of creation:||1999|
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References listed on IDEAS
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- Bikhchandani, Sushil & Sharma, Sunil, 1996.
"Optimal search with learning,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 20(1-3), pages 333-359.
- Benos, Alexandros V., 1998. "Aggressiveness and survival of overconfident traders," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 353-383, September.
- Terrance Odean., 1996. "Volume, Volatility, Price and Profit When All Trader Are Above Average," Research Program in Finance Working Papers RPF-266, University of California at Berkeley.
- Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
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