Self-Confidence, Overconfidence and Prenatal Testosterone Exposure: Evidence from the Lab
CentER Discussion Paper Series No. 2014-014
22 Pages Posted: 19 Feb 2014
Date Written: February 14, 2014
This paper examines whether the degree of confidence and overconfidence in one's ability is determined biologically. In particular, we study whether fetal testosterone exposure correlates with an incentive-compatible measure of confidence within an experimental setting. We find that men (rather than women) who were exposed to high testosterone levels in their mother's womb are less likely to overestimate their actual performance, which in turn helps them to gain higher monetary rewards. Men exposed to low prenatal testosterone levels, instead, set unrealistically high expectations which results in self-defeating behavior. These results from the lab are able to reconcile hitherto disconnected evidence from the field, by providing a link between traders' overconfidence bias, long-term financial returns and prenatal testosterone exposure.
Keywords: 2D:4D, testosterone, neuroeconomics, expectations, overconfidence, self-confidence, goals
JEL Classification: C91, D03, D87
Suggested Citation: Suggested Citation