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Unrealistic Optimism about Exogenous Events: An Experimental Test

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Abstract

An experiment is designed to test if individuals show (unrealistic) optimism when determining their subjective probabilities about exogenous circumstances. Subjects in the control group make an informed guess about a number, under a payment scheme that rewards close guesses. In the treatment group, subjects' payments depend on the actual number as well as on the closeness of the guess, and they are thus given an incentive to guess optimistically. The data suggests that there is an optimistic bias.

Suggested Citation

  • Muren, Astri, 2004. "Unrealistic Optimism about Exogenous Events: An Experimental Test," Research Papers in Economics 2004:1, Stockholm University, Department of Economics.
    • Handle: RePEc:hhs:sunrpe:2004_0001
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    File URL: http://www2.ne.su.se/paper/wp04_01.pdf
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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
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    5. Forsythe, Robert & Rietz, Thomas A. & Ross, Thomas W., 1999. "Wishes, expectations and actions: a survey on price formation in election stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 83-110, May.
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    Cited by:

    1. Barbara Luppi & Francesco Parisi, 2016. "Optimal liability for optimistic tortfeasors," European Journal of Law and Economics, Springer, vol. 41(3), pages 559-574, June.

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    More about this item

    Keywords

    optimism; unrealistic optimism; wishful thinking; wish fulfilment.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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