Does the Better-than-Average Effect Show that People are Overconfident?: Two Experiments

Published on Apr 1, 2015in Journal of the European Economic Association4.583
· DOI :10.1111/JEEA.12116
Jean-Pierre Benoit16
Estimated H-index: 16
,
Juan Dubra12
Estimated H-index: 12
,
Don A. Moore54
Estimated H-index: 54
Sources
Abstract
We conduct two experimental tests of the claim that people are overconfident, using new tests of overplacement that are based on a formal Bayesian model. Our two experiments, on easy quizzes, find that people overplace themselves. More precisely, we find apparently overconfident data that cannot be accounted for by a rational population of expected utility maximizers who care only about money. The finding represents new evidence of overconfidence that is robust to the Bayesian critique offered by Benoit and Dubra (Jean-Pierre Benoit and Juan Dubra (2011). “Apparent Overconfidence.” Econometrica, 79, 1591–1625). We discuss possible limitations of our results.
📖 Papers frequently viewed together
1 Author (Ola Svenson)
References61
Newest
#1Stephen V. Burks (UMN: University of Minnesota)H-Index: 20
#2Jeffrey P. Carpenter (Middlebury College)H-Index: 41
Last. Aldo Rustichini (UMN: University of Minnesota)H-Index: 69
view all 4 authors...
Evidence from both psychology and economics indicates that individuals give statements that appear to overestimate their ability compared to that of others. We test three theories that predict such relative overconfidence. The first theory argues that overconfidence can be generated by Bayesian updating from a common prior and truthful statements if individuals do not know their true type. The second theory suggests that self-image concerns asymmetrically affect the choice to receive new informa...
Source
#1Christoph Merkle (UMA: University of Mannheim)H-Index: 8
#2Martin Weber (UMA: University of Mannheim)H-Index: 79
Abstract The better-than-average effect describes the tendency of people to perceive their skills and virtues as being above average. We derive a new experimental paradigm to distinguish between two possible explanations for the effect, namely rational information processing and overconfidence. Experiment participants evaluate their relative position within the population by stating their complete belief distribution. This approach sidesteps recent methodology concerns associated with previous r...
Source
#1Dominic D. P. Johnson (Edin.: University of Edinburgh)H-Index: 33
#2James H. Fowler (UCSD: University of California, San Diego)H-Index: 83
Overconfidence is a major puzzle in evolutionary biology, economics and political science, because despite causing costly errors and policy failures, it remains a widespread bias in human judgement and decision-making. Animals too, in examples seen during conflict behaviour, are liable to overconfidence. Dominic Johnson and James Fowler use game theory to model the situations under which overconfidence is an advantage, and find that they occupy a large part of the parameter space. They also show...
Source
We study processing and acquisition of objective information regarding qualities that people care about, intelligence and beauty. Subjects receiving negative feedback did not respect the strength of these signals, were far less predictable in their updating behavior and exhibited an aversion to new information. In response to good news, inference conformed more closely to Bayes' Rule, both in accuracy and precision. Signal direction did not affect updating or acquisition in our neutral control. ...
Source
#1Charles R. PlottH-Index: 67
#2Kathryn Zeiler (Georgetown University)H-Index: 11
Plott and Zeiler (2005) report that the willingness-to-pay/willingness-to-accept disparity is absent for mugs in a particular experimental setting, designed to neutralize misconceptions about the procedures used to elicit valuations. This result has received sustained attention in the literature. However, other data from that same study, not published in that paper, exhibit a significant and persistent disparity when the same experimental procedures are applied to lotteries. We report new data c...
Source
#1Adam J. L. Harris (Cardiff University)H-Index: 16
#2Ulrike Hahn (Cardiff University)H-Index: 38
A robust finding in social psychology is that people judge negative events as less likely to happen to themselves than to the average person, a behavior interpreted as showing that people are “unrealistically optimistic” in their judgments of risk concerning future life events. However, we demonstrate how unbiased responses can result in data patterns commonly interpreted as indicative of optimism for purely statistical reasons. Specifically, we show how extant data from unrealistic optimism stu...
Source
#1Guillaume HollardH-Index: 15
#2Sébastien MassoniH-Index: 9
Last. Jean-Christophe VergnaudH-Index: 13
view all 3 authors...
Since they have been increasingly used in economics, elicitation rules for subjective beliefs are under scrutiny. In this paper, we propose an experimental design to compare the performance of such rules. Contrary to previous works in which elicited beliefs are compared to an objective benchmark, we consider a pure subjective belief framework (confidence in own performance in a cognitive task and a perceptual task). The performances of elicitation rules are assessed according to the accuracy of ...
#1Dan Ariely (Duke University)H-Index: 94
#2Uri GneezyH-Index: 71
Last. Nina Mazar (U of T: University of Toronto)H-Index: 18
view all 4 authors...
Workers in a wide variety of jobs are paid based on performance, which is commonly seen as enhancing effort and productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can, in some cases, result in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments in the U.S. and in India in which subjects worked on different tasks and received performance-contingent payment...
Source
#1Edi Karni (Johns Hopkins University)H-Index: 35
This paper describes a direct revelation mechanism for eliciting agents' subjective probabilities. The game induced by the mechanism has a dominant strategy equilibrium in which the players reveal their subjective probabilities. Copyright 2009 The Econometric Society.
Source
#1Jeremy Clark (Cant.: University of Canterbury)H-Index: 14
#2Lana Friesen (UQ: University of Queensland)H-Index: 12
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 aggre...
Source
Cited By35
Newest
#1Peng Nie (Xi'an Jiaotong University)H-Index: 11
#2Lu Wang (Xi'an Jiaotong University)H-Index: 3
Last. Nicolas R. Ziebarth (Cornell University)H-Index: 17
view all 6 authors...
Abstract null null The health risks of the current COVID-19 pandemic, together with the drastic mitigation measures taken in many affected nations, pose an obvious threat to public mental health. The social science literature has already established a clear link between mental health and sociodemographic as well as economic factors; at the same time, a growing number of studies investigate the role of biased risk perceptions. To assess this role in the context of COVID-19, this study first imple...
Source
#1Raphael Guber (MPG: Max Planck Society)H-Index: 2
#2Martin G. Kocher (University of Vienna)H-Index: 40
Last. Joachim Winter (LMU: Ludwig Maximilian University of Munich)H-Index: 41
view all 3 authors...
Recent research in contract theory on the effects of behavioral biases implicitly assumes that they are stable, in the sense of not being affected by the contracts themselves. In this paper, we provide evidence that this is not necessarily the case. We show that in an insurance context, being insured against losses that may be incurred in a real-effort task changes subjects' self-confidence. Our novel experimental design allows us to disentangle selection into insurance from the effects of being...
Source
#1Tim Friehe (University of Marburg)H-Index: 14
#2Markus Pannenberg (Bielefeld University of Applied Sciences)H-Index: 16
Abstract This paper investigates if and how time preferences are related to beliefs regarding one’s own future outcomes. We measure overconfident beliefs using the difference between an individual’s expected position and their observed percentile in the distribution of monthly gross wages one year after our survey. Our regression exercises link this bias measure to information about patience, conditioning on risk preferences, personality traits, cognitive ability, and the individual’s socio-econ...
Source
#1Marco Bertoni (UNIPD: University of Padua)H-Index: 8
#2Giorgio Brunello (UNIPD: University of Padua)H-Index: 46
Last. Lorenzo Rocco (UNIPD: University of Padua)H-Index: 17
view all 4 authors...
Abstract In 2017 the Italian government established the Fund to Finance Basic Research Activities – FFABR – with the purpose of assigning a 3,000-euro research grant to the most productive applicants among eligible assistant and associate professors. We show that many low-productivity researchers applied to the program while many high-productivity ones did not. Our evidence from both a simple structural model of program participation estimated on registry data, and a survey of the eligible popul...
Source
#1Cuimin Ba (UPenn: University of Pennsylvania)H-Index: 1
#2Alice Gindin (UPenn: University of Pennsylvania)H-Index: 1
Overconfidence has been extensively documented in psychology and economics. This paper studies the long-term interaction between two overconfident agents who learn about common payoff-relevant fundamentals, such as the quality of a joint project or their working environment, and choose how much effort to exert. Overconfidence causes agents to underestimate the fundamental to justify their worse-than-expected performance. We show that in many settings, agents create informational externalities fo...
Source
#1Yanchun Jin (UTokyo: University of Tokyo)H-Index: 1
#2Ryo Okui (SNU: Seoul National University)H-Index: 12
We propose an econometric procedure to test for the presence of overconfidence using data collected by "ranking experiments." Our approach applies the techniques from the moment inequality literature. Although a ranking experiment is a typical way to collect data for analyzing overconfidence, Benoit and Dubra (2011) show that a ranking experiment may generate data that indicate overconfidence even if participants are purely rational Bayesian updaters. Instead, they provide a set of inequalities ...
Source
#1Peter J. Phillips (University of Southern Queensland)H-Index: 8
#2Gabriela Pohl (University of Southern Queensland)H-Index: 4
This paper addresses the question of why, in spite of their characteristics as ‘strong signals’, terrorism red flags can sometimes be missed. This represents a serious problem for counter-terrorism. By analysing the two phases of the investigative decision-making process, judgement and evaluation, we explain how the decision-making process can introduce distortions that can weaken even the strongest signals, making them vulnerable to being missed. We first examine the concept of weak signals and...
Source
#1Britta Hoyer (University of Paderborn)H-Index: 6
#2Thomas van Huizen (UU: Utrecht University)H-Index: 7
Last. Bastian Westbrock (FU Hagen: FernUniversität Hagen)H-Index: 6
view all 6 authors...
Abstract This study examines the gender gap in competitiveness in an educational setting and tests whether this gap depends on the difficulty of the task at hand. For this purpose, we administered a series of experiments during the final exam of a university course. We confronted three cohorts of undergraduate students with a set of bonus questions and the choice between an absolute and a tournament grading scheme for these questions. To test the moderating impact of task difficulty, we (randoml...
Source
#1Patrick R. Heck (GHS: Geisinger Health System)H-Index: 8
#2Joachim I. Krueger (Brown University)H-Index: 48
Source
#1Ashley V. Whillans (Harvard University)H-Index: 14
#2Alexander H. Jordan (Harvard University)H-Index: 20
Last. Frances S. ChenH-Index: 20
view all 3 authors...
Our thoughts, feelings, and behaviors are shaped in critical ways by our beliefs about how we compare to other people. Prior research has predominately focused on the consequences of believing oneself to be better than average (BTA). Research on the consequences of worse-than-average (WTA) beliefs has been far more limited, focusing mostly on the downsides of WTA beliefs. In this paper, we argue for the systematic investigation of the possible long-term benefits of WTA beliefs in domains includi...
Source
This website uses cookies.
We use cookies to improve your online experience. By continuing to use our website we assume you agree to the placement of these cookies.
To learn more, you can find in our Privacy Policy.