Managing Self-Confidence: Theory and Experimental Evidence

51 Pages Posted: 26 Jun 2013

See all articles by Markus M. Mobius

Markus M. Mobius

Microsoft Corporation - Microsoft Research New England; University of Michigan at Ann Arbor - School of Information; National Bureau of Economic Research (NBER)

Muriel Niederle

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Paul Niehaus

University of California, San Diego (UCSD)

Tanya Rosenblat

Iowa State University

Multiple version iconThere are 2 versions of this paper

Date Written: October 3, 2011

Abstract

Evidence from social psychology suggests that agents process information about their own ability in a biased manner. This evidence has motivated exciting research in behavioral economics, but also garnered critics who point out that it is potentially consistent with standard Bayesian updating. We implement a direct experimental test. We study a large sample of 656 undergraduate students, tracking the evolution of their beliefs about their own relative performance on an IQ test as they receive noisy feedback from a known data-generating process. Our design lets us repeatedly measure the complete relevant belief distribution incentive-compatibly. We find that subjects (1) place approximately full weight on their priors, but (2) are asymmetric, over-weighting positive feedback relative to negative, and (3) conservative, updating too little in response to both positive and negative signals. These biases are substantially less pronounced in a placebo experiment where ego is not at stake. We also find that (4) a substantial portion of subjects are averse to receiving information about their ability, and that (5) less confident subjects are more likely to be averse. We unify these phenomena by showing that they all arise naturally in a simple model of optimally biased Bayesian information processing.

Keywords: asymmetric belief updating, conservatism, information aversion

JEL Classification: C91, C93, D83

Suggested Citation

Mobius, Markus M. and Niederle, Muriel and Niehaus, Paul and Rosenblat, Tanya, Managing Self-Confidence: Theory and Experimental Evidence (October 3, 2011). FRB of Boston Working Paper No. 11-14. Available at SSRN: https://ssrn.com/abstract=2285056 or http://dx.doi.org/10.2139/ssrn.2285056

Markus M. Mobius

Microsoft Corporation - Microsoft Research New England ( email )

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HOME PAGE: http://www.markusmobius.org

University of Michigan at Ann Arbor - School of Information ( email )

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HOME PAGE: http://www.markusmobius.org

National Bureau of Economic Research (NBER) ( email )

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HOME PAGE: http://www.markusmobius.org

Muriel Niederle (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER) ( email )

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United States

Paul Niehaus

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

Tanya Rosenblat

Iowa State University ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

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