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Absolute vs. relative success: why overconfidence is an inefficient equilibrium

Overconfidence is one of the most ubiquitous biases in the social sciences, but the evidence regarding its overall costs and benefits is mixed. To test the possibility that overconfidence might yield important relative benefits that offset its absolute costs, we conducted an experiment (N=298 univer...

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Bibliographic Details
Main Authors: Soldà, Alice (Author) , Ke, Changxia (Author) , Hippel, William von (Author) , Page, Lionel (Author)
Format: Book/Monograph Working Paper
Language:English
Published: Heidelberg Heidelberg University, Department of Economics March 2021
Series:AWI discussion paper series no. 700 (March 2021)
In: AWI discussion paper series (no. 700 (March 2021))

DOI:10.11588/heidok.00029513
Subjects:
Graue Literatur
Online Access:Verlag, kostenfrei: https://www.uni-heidelberg.de/md/awi/forschung/dp700.pdf
Resolving-System, kostenfrei: https://doi.org/10.11588/heidok.00029513
Resolving-System, kostenfrei: http://hdl.handle.net/10419/235023
Resolving-System: https://nbn-resolving.org/urn:nbn:de:bsz:16-heidok-295132
Langzeitarchivierung Nationalbibliothek: https://d-nb.info/123056232X/34
Verlag, kostenfrei: http://www.ub.uni-heidelberg.de/archiv/29513
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Author Notes:Alice Soldà, Changxia Ke, William von Hippel, Lionel Page
Description
Summary:Overconfidence is one of the most ubiquitous biases in the social sciences, but the evidence regarding its overall costs and benefits is mixed. To test the possibility that overconfidence might yield important relative benefits that offset its absolute costs, we conducted an experiment (N=298 university students) in which pairs of participants bargain over the unequal allocation of a prize that was earned via a joint effort. We manipulated confidence using a binary noisy signal to investigate the causal effect of negotiators' beliefs about their relative contribution on the outcome of the negotiation. Our results provide evidence that high levels of confidence lead to relative benefits (how much one earns compared to one's partner) but absolute costs (how much money one receives overall). These results suggest that overconfidence creates an inefficient equilibrium whereby overconfident negotiators benefit over their partners even as they bring about joint losses.
Physical Description:Online Resource
DOI:10.11588/heidok.00029513

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