Skill, Luck, Overconfidence, and Risk Taking

37 Pages Posted: 1 May 2009

See all articles by Robin M. Hogarth

Robin M. Hogarth

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Natalia Karelaia

INSEAD - Decision Sciences

Date Written: December 15, 2008

Abstract

In most naturally occurring situations, success depends on both skill and chance. We compare experimental market entry decisions where payoffs depend on skill alone and combinations of skill and luck. We find more risk taking with skill and luck as opposed to skill alone, particularly for males, and little overconfidence. Our data support an explanation based on differential attitudes toward luck by those whose self-assessed skills are low and high. Making luck more important induces greater optimism for the former, while the latter maintain a belief that high levels of skill are sufficient to overcome the vagaries of chance.

Keywords: Skill, luck, overconfidence, optimism, competition, gender differences, risk taking, LeeX

JEL Classification: C91, D03, D81

Suggested Citation

Hogarth, Robin M. and Karelaia, Natalia, Skill, Luck, Overconfidence, and Risk Taking (December 15, 2008). Available at SSRN: https://ssrn.com/abstract=1374235 or http://dx.doi.org/10.2139/ssrn.1374235

Robin M. Hogarth (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
34 93 542 2561 (Phone)
34 93 542 1746 (Fax)

Natalia Karelaia

INSEAD - Decision Sciences ( email )

United States

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