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True Overconfidence, Revealed through Actions: An Experiment

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  • Cheung, Stephen L.

    () (University of Sydney)

  • Johnstone, Lachlan

    (University of Sydney)

Abstract

We report an experiment that infers true overconfidence in relative ability through actions, as opposed to reported beliefs. Subjects choose how to invest earnings from a skill task when the returns depend solely upon risk, or both risk and relative placement, enabling joint estimation of individual risk preferences and implied subjective beliefs of placing in the top half. We find evidence of aggregate overconfidence only in a treatment that receives minimal feedback on performance in a trial task. In treatments that receive more detailed feedback, aggregate overconfidence is not observed although identifiable segments of overand underconfident individuals persist.

Suggested Citation

  • Cheung, Stephen L. & Johnstone, Lachlan, 2017. "True Overconfidence, Revealed through Actions: An Experiment," IZA Discussion Papers 10545, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10545
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    References listed on IDEAS

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    Cited by:

    1. Barron, Kai & Gravert, Christina, 2018. "Confidence and Career Choices: An Experiment," Working Papers in Economics 715, University of Gothenburg, Department of Economics.
    2. Barron, Kai & Gravert, Christina, 2018. "Beliefs and actions: How a shift in confidence affects choices," MPRA Paper 84743, University Library of Munich, Germany.

    More about this item

    Keywords

    true overconfidence; overplacement; subjective beliefs; joint estimation;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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