Overconfidence and underconfidence: When and why people underestimate (and overestimate) the competition

Moore, Don A.; Cain, Daylian M.

doi:10.1016/j.obhdp.2006.09.002

Cited by 280 publications

(194 citation statements)

References 42 publications

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“…Empirical support for the permanence of biases has been shown by Moore and Cain (2007), where the provision of absolute and relative performance feedback did not reduce biases in relative self-assessments. Even if misjudgments partly correct over time with increasing experience and reliable feedback, wrong self-assessments on own relative ability should be taken into account particularly for young professionals in the creative class when designing incentive schemes to attract creative talents.…”

Section: Resultsmentioning

confidence: 94%

How Creative are You? An Experimental Study on Self-Selection in a Competitive Incentive Scheme for Creative Performance

Bradler

2015

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. March 2015Abstract Economic theory suggests that performance pay may serve as an effective screening device to attract productive agents. The existing evidence on the self-selection of agents is largely limited to job tasks where performance is driven by routine, well-defined procedures. This study presents evidence for a creative task and studies how agents self-select into a tournament-based scheme vs. a fixed pay scheme. The experiment allows for the measurement of creative productivity, risk preferences, self-assessments, gender, and other socio-economic characteristics such as the Big Five personality traits. Results show that the two payment schemes systematically attract agents with different characteristics. However, results differ fundamentally from previously found patterns. Agents did not self-select into the tournament scheme according to their creative productivity, but only according to their risk attitudes and self-assessments. The reason for the absence of a selection of the most creative agents into the tournament is that there exist substantial misjudgments of relative creative productivity. Further evidence from a representative German survey data set provides additional support for the experimental results suggesting external validity.

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Section: Resultsmentioning

confidence: 94%

How Creative are You? An Experimental Study on Self-Selection in a Competitive Incentive Scheme for Creative Performance

Bradler

2015

SSRN Journal

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“…In a convincing presentation, Moore and Cain (2007) and Moore and Healy (2008) have shown that this effect can be traced back to the fact that "people often have imperfect information about their own performance, abilities, or chance of success. However, they have even worse information about [the performance] of others.…”

Section: Self-other Placementmentioning

confidence: 99%

Toward a synthesis of cognitive biases: How noisy information processing can bias human decision making.

Hilbert

2012

Psychological Bulletin

312

192

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A single coherent framework is proposed to synthesize long-standing research on 8 seemingly unrelated cognitive decision-making biases. During the past 6 decades, hundreds of empirical studies have resulted in a variety of rules of thumb that specify how humans systematically deviate from what is normatively expected from their decisions. Several complementary generative mechanisms have been proposed to explain those cognitive biases. Here it is suggested that (at least) 8 of these empirically detected decision-making biases can be produced by simply assuming noisy deviations in the memory-based information processes that convert objective evidence (observations) into subjective estimates (decisions). An integrative framework is presented to show how similar noise-based mechanisms can lead to conservatism, the Bayesian likelihood bias, illusory correlations, biased self–other placement, subadditivity, exaggerated expectation, the confidence bias, and the hard–easy effect. Analytical tools from information theory are used to explore the nature and limitations that characterize such information processes for binary and multiary decision-making exercises. The ensuing synthesis offers formal mathematical definitions of the biases and their underlying generative mechanism, which permits a consolidated analysis of how they are related. This synthesis contributes to the larger goal of creating a coherent picture that explains the relations among the myriad of seemingly unrelated biases and their potential psychological generative mechanisms. Limitations and research questions are discussed.

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“…1 This literature has, in turn, stimulated significant streams of work in both empirical and, more recently, theoretical economics. For example, findings of overconfidence in own performance relative to that of others (e.g., Svenson 1981) has motivated many studies by experimental economists on the relationship between relative confidence, relative ability, and willingness to take risks in strategic environments (e.g., Camerer and Lovallo 1999;Hoelzl and Rustichini 2005;Moore and Cain 2007;Niederle and Vesterlund 2007). Confidence about own abilities has been shown to affect many important spheres of economic behaviour including consumer decision making (Grubb 2015), trading in financial markets (Biais et al 2005;Kent and Hirshleifer 2015), innovative activity (Herz et al 2014), investment in education (Dunning et al 2004), and decision making among managers and CEOs (Malmendier and Tate 2015).…”

Section: Introductionmentioning

confidence: 99%

How do risk attitudes affect measured confidence?

2016

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We examine the relationship between confidence in own absolute performance and risk attitudes using two confidence elicitation procedures: self-reported (non-incentivised) confidence and an incentivised procedure that elicits the certainty equivalent of a bet based on performance. The former procedure reproduces the Bhardeasy effect^(underconfidence in easy tasks and overconfidence in hard tasks) found in a large number of studies using non-incentivised self-reports. The latter procedure produces general underconfidence, which is significantly reduced, but not eliminated when we filter out the effects of risk attitudes. Finally, we find that self-reported confidence correlates significantly with features of individual risk attitudes including parameters of individual probability weighting.

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Overconfidence and underconfidence: When and why people underestimate (and overestimate) the competition

Cited by 280 publications

References 42 publications

How Creative are You? An Experimental Study on Self-Selection in a Competitive Incentive Scheme for Creative Performance

How Creative are You? An Experimental Study on Self-Selection in a Competitive Incentive Scheme for Creative Performance

Toward a synthesis of cognitive biases: How noisy information processing can bias human decision making.

How do risk attitudes affect measured confidence?

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