True Overconfidence, Revealed Through Actions: An Experiment

47 Pages Posted: 27 Feb 2017

See all articles by Stephen L. Cheung

Stephen L. Cheung

The University of Sydney; IZA Institute of Labor Economics

Lachlan Johnstone

The University of Sydney

Abstract

We report an experiment that infers true overconfidence in relative ability through actions, as opposed to reported beliefs. Subjects choose how to invest earnings from a skill task when the returns depend solely upon risk, or both risk and relative placement, enabling joint estimation of individual risk preferences and implied subjective beliefs of placing in the top half. We find evidence of aggregate overconfidence only in a treatment that receives minimal feedback on performance in a trial task. In treatments that receive more detailed feedback, aggregate overconfidence is not observed although identifiable segments of over and underconfident individuals persist.

Keywords: true overconfidence, overplacement, subjective beliefs, joint estimation

JEL Classification: C91, D03, D81, D83

Suggested Citation

Cheung, Stephen L. and Johnstone, Lachlan, True Overconfidence, Revealed Through Actions: An Experiment. IZA Discussion Paper No. 10545, Available at SSRN: https://ssrn.com/abstract=2923628 or http://dx.doi.org/10.2139/ssrn.2923628

Stephen L. Cheung (Contact Author)

The University of Sydney ( email )

School of Economics
Social Sciences Building A02
Sydney, NSW 2006
Australia
+61 2 9351 2135 (Phone)
+61 2 9351 4341 (Fax)

HOME PAGE: http://https://sydney.edu.au/arts/economics/staff/profiles/stephen.cheung.php

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Lachlan Johnstone

The University of Sydney

University of Sydney
Sydney, NSW 2006
Australia

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