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Why Uninformed Agents (Pretend to) Know More

Posted: 28 Jun 2012  

Peter Schanbacher

University of Konstanz - Faculty of Economics and Statistics

Date Written: June 26, 2012

Abstract

Many social interactions (examples are market overreactions, high rates of acquisitions, strikes, wars) are the result of agents' overconfidence. Agents are in particular overconfident for difficult tasks. This paper analyzes overconfidence in the context of a statistical estimation problem. We find that it is rational to (i) be overconfident and (ii) to be notably overconfident if the task is difficult. The counterintuitive finding that uninformed agents which should be the least confident ones show the highest degree of overconfidence can be explained as a rational behavior.

Keywords: belief elicitation, probability assessment, shrinking, overconfidence, hard-easy effect

JEL Classification: C44, D81, D83

Suggested Citation

Schanbacher, Peter, Why Uninformed Agents (Pretend to) Know More (June 26, 2012). Available at SSRN: https://ssrn.com/abstract=2094387 or http://dx.doi.org/10.2139/ssrn.2094387

Peter Schanbacher (Contact Author)

University of Konstanz - Faculty of Economics and Statistics ( email )

Universitaetsstr. 10
78457 Konstanz
Germany

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