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Unpacking Overconfident Behavior When Betting on Oneself

Author

Listed:
  • Abdellaoui, Mohammed

    (HEC Paris)

  • Bleichrodt, Han

    (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Australian National University (ANU) - School of Economics)

  • Gutierrez, Cédric

    (Bocconi University - Department of Management and Technology)

Abstract

Overconfident behavior, the excessive willingness to bet on one’s performance, may be driven by optimistic beliefs and/or ambiguity attitudes. Separating these factors is key for understanding and correcting overconfident behavior, as they may call for different corrective actions. We present a method to do so, which we implement in two incentivized experiments. The first experiment shows the importance of ambiguity attitudes for overconfident behavior. Optimistic ambiguity attitudes (ambiguity seeking) counterbalanced the effect of pessimistic beliefs, leading to neither over- nor underconfident behavior. The second experiment applies our method in contexts where overconfident behavior is expected to vary: easy vs. hard tasks. Our results showed that task difficulty affected both beliefs and ambiguity attitudes. However, while beliefs were more optimistic for relative performance (rank) and more pessimistic for absolute performance (score) on easy tasks compared to hard tasks, ambiguity attitudes were always more optimistic on easy tasks for both absolute and relative performance. Our findings show the subtle interplay between beliefs and ambiguity attitudes: they can reinforce or offset each other, depending on the context, increasing or lowering overconfident behavior.

Suggested Citation

  • Abdellaoui, Mohammed & Bleichrodt, Han & Gutierrez, Cédric, 2023. "Unpacking Overconfident Behavior When Betting on Oneself," HEC Research Papers Series 1484, HEC Paris.
    • Handle: RePEc:ebg:heccah:1484
    DOI: 10.2139/ssrn.4441080
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    More about this item

    Keywords

    overconfidence; subjective expected utility; beliefs measurement; ambiguity attitudes; hard-easy effect.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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