Overconfidence in Forecasts of Own Performance: An Experimental Study*

Authors


  • *

     We are grateful for feedback from conference participants at the 2003 North American Economic Science Association meetings in Tucson, the 2005 World Economic Science Association meetings in Montreal and to seminar participants at the University of Auckland in October 2004, the University of Canterbury in August 2005 and Economic Design Network workshop participants at the University of Melbourne in August 2007. We also thank Bob Reed, Andrea Kutinova and three anonymous referees for their help, and acknowledge the financial support of the University of Canterbury through contestable research grant U6487.

Abstract

Systematic overconfidence by individuals regarding their abilities and prospects could have important economic consequences. But overconfidence has received little direct testing within economics. We use experiments to test for overconfidence in people's forecasts of their absolute or relative performance in two unfamiliar tasks. Given their chosen effort, participants have incentives to forecast accurately, with opportunities for feedback, learning and revision. Forecasts are evaluated at aggregate and individual levels. We find zero mean error or underconfidence far more prevalent than overconfidence. Underconfidence is greatest in forecasts of absolute rather than relative performance and among those using greater effort quantity or quality.

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