Apparent Overconfidence

Authors

  • Jean-Pierre Benoît,

    1. London Business School, Regent's Park, London NW1 4SA, United Kingdom; jpbenoit@london.edu
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  • Juan Dubra

    1. Dept. of Economics, Universidad de Montevideo, Prudencio de Pena 2440, Montevideo, Uruguay CP 11400; dubraj@um.edu.uy
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    • We thank Stefano Sacchetto and Gabriel Illanes for their research assistance. We also thank Raphael Corbi, Rafael Di Tella, John Duffy, Federico Echenique, Emilio Espino, P. J. Healy, Richard Lowery, Henry Moon, Don Moore, Nigel Nicholson, Madan Pillutla, Matt Rabin, Ariel Rubinstein, Luís Santos-Pinto, Jack Stecher, and Juan Xandri for their comments. Juan Dubra gratefully acknowledges the financial support of ANII.


Abstract

It is common for a majority of people to rank themselves as better than average on simple tasks and worse than average on difficult tasks. The literature takes for granted that this apparent misconfidence is problematic. We argue, however, that this behavior is consistent with purely rational Bayesian updaters. In fact, better-than-average data alone cannot be used to show overconfidence; we indicate which type of data can be used. Our theory is consistent with empirical patterns found in the literature.

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