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Overconfidence, Underconfidence, and Welfare

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Listed:
  • Takao Asano
  • Takuma Kunieda
  • Akihisa Shibata

Abstract

Using a simple framework due to Cooper and John (1988) and Cooper (1999), this paper derives the conditions under which overconfidence and underconfidence of agents lead to Pareto improvement. We show that an agent´s overconfidence in a game exhibiting strategic complementarity and positive spillovers and an agent´s underconfidence in a game exhibiting strategic complementarity and negative spillovers can lead to Pareto improvement.

Suggested Citation

  • Takao Asano & Takuma Kunieda & Akihisa Shibata, 2015. "Overconfidence, Underconfidence, and Welfare," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(2), pages 372-384, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201506)171:2_372:ouaw_2.0.tx_2-f
    DOI: 10.1628/093245615X14273596659161
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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