The Trouble With Overconfidence

75 Pages Posted: 23 Jul 2007

See all articles by Paul J. Healy

Paul J. Healy

Ohio State University (OSU) - Economics

Don A. Moore

University of California, Berkeley - Haas School of Business

Date Written: May 22, 2007

Abstract

This paper presents a reconciliation of the three distinct ways in which the research literature has defined overconfidence: (1) overestimation of one's actual performance, (2) overplacement of one's performance relative to others, and (3) excessive precision in one's beliefs. Experimental evidence shows that reversals of the first two (apparent underconfidence), when they occur, tend to be on different types of tasks. On difficult tasks, people overestimate their actual performances but also believe that they are worse than others; on easy tasks, people underestimate their actual performances but believe they are better than others. This paper offers a straightforward theory that can explain these inconsistencies. Overprecision appears to be more persistent than either of the other two types of overconfidence, but its presence reduces the magnitude of both overestimation and overplacement.

Keywords: overconfidence, underconfidence, overestimation, overplacement, overprecision

Suggested Citation

Healy, Paul J. and Moore, Don A., The Trouble With Overconfidence (May 22, 2007). Available at SSRN: https://ssrn.com/abstract=1001821 or http://dx.doi.org/10.2139/ssrn.1001821

Paul J. Healy

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States

HOME PAGE: http://healy.econ.ohio-state.edu

Don A. Moore (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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