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When "hope springs eternal": The role of chance in risk taking

In most naturally occurring situations, success depends on both skill and chance. We contrast experimental market entry decisions where payoffs depend on skill as opposed to combinations of skill and chance. Our data show differential attitudes toward chance by those whose self-assessed skills are low and high. Making chance more important induces greater optimism for the former who start taking more risk, while the latter maintain a belief that high levels of skill are sufficient to overcome the vagaries of chance. Finally, although we observed “excess entry” (i.e., too many participants entered markets), this could not be attributed to overconfidence.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/1131.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1131.

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Date of creation: Dec 2008
Date of revision: Jun 2009
Handle: RePEc:upf:upfgen:1131
Contact details of provider: Web page: http://www.econ.upf.edu/

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