A Model of Rational Bias in Self-Assessments
39 Pages Posted: 27 May 2003
Date Written: April 14, 2003
A body of empirical work documents that most people believe they are above average in a variety of skills and abilities. This paper argues that such evidence does not necessarily imply that people process information in an irrational way. I build a model in which people can learn about their abilities at a cost of foregone production. Individuals in this model keep testing their abilities until their self-assessments become favorable enough, at which point they stop. This way, a disproportionately large share of the population ends up with a high opinion about their abilities.
Keywords: Bias in self-assessments, Overconfidence, Learning about ability
JEL Classification: D81, D83, J22, J29
Suggested Citation: Suggested Citation