Self-Confidence and Strategic Behavior

48 Pages Posted: 13 Jan 2014

See all articles by Gary Charness

Gary Charness

University of California, Santa Barbara (UCSB) - Department of Economics

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics

Jeroen van de Ven

University of Amsterdam; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: December 30, 2013

Abstract

We test experimentally an explanation of over and under confidence as motivated by (perhaps unconscious) strategic concerns, and find compelling evidence supporting this hypothesis in the behavior of participants who send and respond to others’ statements of confidence about how well they have scored on an IQ test. In two-player tournaments where the highest score wins, one is likely to enter at equilibrium when he knows that his stated confidence is higher than the other player’s, but very unlikely when the reverse is true. Consistent with this behavior, stated confidence by males is inflated when deterrence is strategically optimal and is instead deflated by males and females when hustling (encouraging entry) is strategically optimal. This behavior is consistent with the equilibrium of the corresponding signaling game. Based on the theory of salient perturbations, we propose a strategic foundation of overconfidence. Since overconfident statements are used in familiar situations in which it is strategically effective, it may also occur in the absence of strategic benefits, provided the environment is similar.

Keywords: self-confidence, overconfidence, salient perturbations, analogies, strategic deterrence, unconscious behavior, self-deception, hustling, experiment

JEL Classification: A120, C910, D030, D820

Suggested Citation

Charness, Gary and Rustichini, Aldo and van de Ven, Jeroen, Self-Confidence and Strategic Behavior (December 30, 2013). CESifo Working Paper Series No. 4517. Available at SSRN: https://ssrn.com/abstract=2378186

Gary Charness (Contact Author)

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States
805-893-2412 (Phone)
805-893-8830 (Fax)

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

Jeroen Van de Ven

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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