A Model of Overconfidence

25 Pages Posted: 21 Jul 2009

See all articles by Bruce A. Weinberg

Bruce A. Weinberg

Ohio State University (OSU) - Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Abstract

People use information about their ability to choose tasks. If more challenging tasks provide more accurate information about ability, people who care about and who are risk averse over their perception of their own ability will choose tasks that are not sufficiently challenging. Overestimation of ability raises utility by deluding people into believing that they are more able than they are in fact. Moderate overestimation of ability and overestimation of the precision of initial information leads people to choose tasks that raise expected output, however extreme overconfidence leads people to undertake tasks that are excessively challenging. Consistent with our results, psychologists have found that moderate overconfidence is both pervasive and advantageous and that people maintain such beliefs by underweighting new information about their ability.

Keywords: overconfidence, behavioral economics, information processing

JEL Classification: D03, D08

Suggested Citation

Weinberg, Bruce A., A Model of Overconfidence. IZA Discussion Paper No. 4285, Available at SSRN: https://ssrn.com/abstract=1434619

Bruce A. Weinberg (Contact Author)

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States
614-292-6701 (Phone)
614-292-3906 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
229
Abstract Views
1,465
rank
148,139
PlumX Metrics