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Self-Confidence and Search

Author

Listed:
  • Falk, Armin

    () (briq, University of Bonn)

  • Huffman, David B.

    () (University of Pittsburgh)

  • Sunde, Uwe

    () (University of Munich)

Abstract

Standard search theory assumes that individuals know, with certainty, how they compare to competing searchers in terms of ability. In contrast, we hypothesize that searchers are uncertain about relative ability, with important implications for search behavior. We test our hypotheses in a laboratory experiment. The first main finding is that people are substantially uncertain about whether they are a type with a high or low probability of success, determined by being above or below the median in terms of ability. Self-confidence, defined as an individual’s self-assessed probability of being a high type, is too high (above zero) for many low types, and too low (below 1) for many high types. Second, people update beliefs based on search outcomes. Self-confidence increases or decreases in the right direction, but is less sensitive to new information than predicted by Bayes’ rule. Third, updating affects future search decisions: people are less likely to search as confidence about being a high type falls. Fourth, some search too little, and others search too much, due to wrong beliefs. Fifth, at the end of the experiment a substantial fraction turn down the chance to learn their exact rank. These are overwhelmingly those with low ability, suggesting an aversion to learning that one is one of the worst performers. Given that people are uncertain even in the simple setting of our experiment, our evidence strongly suggests that uncertainty about ability is relevant in more complex, real-world search settings, including search for a job or search for a mate. Focusing on the case of job search, we discuss how our findings can provide a new explanation for various important stylized facts from field evidence.

Suggested Citation

  • Falk, Armin & Huffman, David B. & Sunde, Uwe, 2006. "Self-Confidence and Search," IZA Discussion Papers 2525, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2525
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    References listed on IDEAS

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    1. El-Gamal, Mahmoud A. & Grether, David M., 1995. "Are People Bayesian? Uncovering Behavioral Strategies," Working Papers 919, California Institute of Technology, Division of the Humanities and Social Sciences.
    2. Paul Frijters & Bas van der Klaauw, 2006. "Job Search with Nonparticipation," Economic Journal, Royal Economic Society, vol. 116(508), pages 45-83, January.
    3. Machin, Stephen & Manning, Alan, 1999. "The causes and consequences of longterm unemployment in Europe," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 47, pages 3085-3139 Elsevier.
    4. Bowlus, Audra J, 1997. "A Search Interpretation of Male-Female Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 15(4), pages 625-657, October.
    5. Stephen R. G. Jones & W. Craig Riddell, 1999. "The Measurement of Unemployment: An Empirical Approach," Econometrica, Econometric Society, vol. 67(1), pages 147-162, January.
    6. Gerdtham, Ulf-G. & Johannesson, Magnus, 2003. "A note on the effect of unemployment on mortality," Journal of Health Economics, Elsevier, vol. 22(3), pages 505-518, May.
    7. David M. Grether, 1980. "Bayes Rule as a Descriptive Model: The Representativeness Heuristic," The Quarterly Journal of Economics, Oxford University Press, vol. 95(3), pages 537-557.
    8. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    9. Hey, John D., 1982. "Search for rules for search," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 65-81, March.
    10. Cox, James C & Oaxaca, Ronald L, 1989. "Laboratory Experiments with a Finite-Horizon Job-Search Model," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 301-329, September.
    11. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 1-25, January.
    12. Botond Köszegi, 2006. "Ego Utility, Overconfidence, and Task Choice," Journal of the European Economic Association, MIT Press, vol. 4(4), pages 673-707, June.
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    Citations

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    Cited by:

    1. Filippin, Antonio & Paccagnella, Marco, 2012. "Family background, self-confidence and economic outcomes," Economics of Education Review, Elsevier, vol. 31(5), pages 824-834.
    2. Dohmen, Thomas & Falk, Armin & Huffman, David & Marklein, Felix & Sunde, Uwe, 2009. "Biased probability judgment: Evidence of incidence and relationship to economic outcomes from a representative sample," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 903-915, December.
    3. Falk, Armin & Huffman, David B. & Sunde, Uwe, 2006. "Do I Have What It Takes? Equilibrium Search with Type Uncertainty and Non-Participation," IZA Discussion Papers 2531, Institute for the Study of Labor (IZA).
    4. Brookins, Philip & Lucas, Adriana & Ryvkin, Dmitry, 2014. "Reducing within-group overconfidence through group identity and between-group confidence judgments," Journal of Economic Psychology, Elsevier, vol. 44(C), pages 1-12.
    5. Ryvkin, Dmitry & Krajč, Marian & Ortmann, Andreas, 2012. "Are the unskilled doomed to remain unaware?," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 1012-1031.

    More about this item

    Keywords

    search; self-confidence; discouraged workers; unemployment; gender;

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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