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Rational Truth-Avoidance and Self-Esteem

We assume that people have beliefs about their abilities, that these generate self-esteem, and that self-esteem is valued intrinsically. Individuals face two choices; one of which strictly dominates the other in a pecuniary sense, but necessarily involves gathering information concerning one's (unobserved) ability. We lay out the circumstances under which an individual may find it rational to reject the dominant choice; an act which, in social psychology is described as avoiding the situation, but which we label truth-avoidance. We find that the incentive to avoid the truth is increasing in income and decreasing in self-esteem, the perceived accuracy of one's self-assessment, and the role which luck plays in generating opportunities.

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Paper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp07-08.

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Length: 17
Date of creation: May 2007
Date of revision:
Handle: RePEc:sfu:sfudps:dp07-08
Contact details of provider: Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
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Order Information: Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
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  1. Simon Gervais & Terrance Odean, . "Learning To Be Overconfident," Rodney L. White Center for Financial Research Working Papers 05-97, Wharton School Rodney L. White Center for Financial Research.
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