Overconfident: Do You Put Your Money On It?* 

Authors


  • * 

    We thank Elisabeth Himmer for her help in data collection, and two anonymous reviewers for constructive comments. Part of this paper was prepared while the first author was visiting scholar at Carnegie Mellon University, funded by the Erwin-Schroedinger-Fellowship J2187-G04 from the Austrian Science Fund (FWF). Part of this research was supported by the NSF grant NSF/SES-0136556.

Abstract

A group exhibits overconfidence if significantly more than half the group members declare to be better than the median in some characteristic. Overconfidence was found in verbal reports for a variety of characteristics and settings but was less often studied for choice behaviour. In an experiment we tested how perceived relative skill influences verbal and choice behaviour. Treatments varied task difficulty and payment. Choice behaviour changes from overconfidence to underconfidence when the task changes from easy and familiar to non-familiar. This effect is significant when monetary payments are at stake and weak when they are not.

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