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Overconfidence in Economic Contests

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  • Munetomo Ando

Abstract

This paper studies an economic contest with two participants, who have overconfidence in their own relative abilities. We examine two different sources of overconfidence, overestimation of one's own ability and underestimation of the rival's ability, and compare the behavioral consequences of each situation with the correctly estimated case. The main result is that the former always induces the participants' aggressive behavior, while the latter does not.

Suggested Citation

  • Munetomo Ando, 2004. "Overconfidence in Economic Contests," Econometric Society 2004 Far Eastern Meetings 708, Econometric Society.
    • Handle: RePEc:ecm:feam04:708
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    References listed on IDEAS

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    1. Hideshi Itoh, 2004. "Moral Hazard and Other‐Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45, March.
    2. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
    3. Robert Dorsey & Laura Razzolini, 2003. "Explaining Overbidding in First Price Auctions Using Controlled Lotteries," Experimental Economics, Springer;Economic Science Association, vol. 6(2), pages 123-140, October.
    4. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, vol. 14(1), pages 1-18, May.
    5. Nirvikar Singh & Donald Wittman, 2001. "Contests where there is variation in the marginal productivity of effort," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 711-744.
    6. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, vol. 72(2), pages 343-362, February.
    7. Juan Dubra, 2004. "Optimism and Overconfidence in Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 198-218, January.
    8. Ando, Munetomo, 2004. "Division of a contest with identical prizes," Journal of the Japanese and International Economies, Elsevier, vol. 18(2), pages 282-297, June.
    9. Noussair, Charles & Silver, Jonathon, 2006. "Behavior in all-pay auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 55(1), pages 189-206, April.
    10. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    11. Colin F. Camerer, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 167-188, Fall.
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    Cited by:

    1. Luís Santos-Pinto, 2010. "Positive Self-Image In Tournaments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 475-496, May.
    2. Ludwig, Sandra & Wichardt, Philipp C. & Wickhorst, Hanke, 2011. "Overconfidence can improve an agent's relative and absolute performance in contests," Economics Letters, Elsevier, vol. 110(3), pages 193-196, March.

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    More about this item

    Keywords

    Overconfidence; economic contest; relative ability; all-pay auction;
    All these keywords.

    JEL classification:

    • D - Microeconomics
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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