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An Evolutionary Justification for Overconfidence

Author

Listed:
  • Gannon, Kim

    (The Abdul Latif Jameel Poverty Action Lab)

  • Zhang, Hanzhe

    (Michigan State University, Department of Economics)

Abstract

This paper provides an evolutionary justification for overconfidence. Players are pairwise matched to fight for a resource and there is uncertainty about who wins the resource if they engage in the fight. Players have different confidence levels about their chance of winning although they actually have the same chance of winning in reality. Each player may know or may not know her opponent’s confidence level. We characterize the evolutionary stable equilibrium, represented by players’ strategies and distribution of confidence levels. Under different informational environments, majority of players are overconfident, i.e. overestimate their chance of winning. We also characterize the evolutionary dynamics and the rate of convergence to the equilibrium.

Suggested Citation

  • Gannon, Kim & Zhang, Hanzhe, 2019. "An Evolutionary Justification for Overconfidence," Working Papers 2019-4, Michigan State University, Department of Economics.
  • Handle: RePEc:ris:msuecw:2019_004
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    References listed on IDEAS

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    Cited by:

    1. Wu, Jiabin & Zhang, Hanzhe, 2020. "Preference Evolution in Different Marriage Markets," Working Papers 2020-1, Michigan State University, Department of Economics.
    2. Wu, Jiabin & Zhang, Hanzhe, 2021. "Preference evolution in different matching markets," European Economic Review, Elsevier, vol. 137(C).

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    More about this item

    Keywords

    overconfidence; evolutionary game;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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