Skill, Luck, Overconfidence, and Risk Taking

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