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Testing for overconfidence statistically: A moment inequality approach

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  • Yanchun Jin
  • Ryo Okui

Abstract

We propose a moment inequality approach to test for the presence of overconfidence using data from ranking experiments where subjects rank themselves relative to other experimental participants. Although a ranking experiment is a typical way to collect data for the analysis of overconfidence, recent studies show that the resulting data may apparently indicate overconfidence even if participants are purely rational Bayesian updaters, in which case a set of inequalities hold. We apply state‐of‐the‐art tests of moment inequalities to test such a set of inequalities. We examine the data from a traditional ranking experiment as well as those from more sophisticated designs.

Suggested Citation

  • Yanchun Jin & Ryo Okui, 2020. "Testing for overconfidence statistically: A moment inequality approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(7), pages 879-892, November.
    • Handle: RePEc:wly:japmet:v:35:y:2020:i:7:p:879-892
    DOI: 10.1002/jae.2780
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    Cited by:

    1. Ryo Okui, 2021. "A moment inequality approach to statistical inference for rankings," The Japanese Economic Review, Springer, vol. 72(2), pages 169-184, April.
    2. Kishishita, Daiki & Yamagishi, Atsushi & Matsumoto, Tomoko, 2023. "Overconfidence, income-ability gap, and preferences for income equality," European Journal of Political Economy, Elsevier, vol. 77(C).

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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