Reducing within-group overconfidence through group identity and between-group confidence judgments

Abstract

Overconfidence in one's relative performance within a group is a wide-spread phenomenon. Similar to individual (or within-group) overconfidence, it was also shown that individuals are, on average, overconfident about the performance of their group relative to other groups. We hypothesize that this between-group overconfidence should mitigate within-group individual overconfidence. Simply put, if the decision maker believes that her group's ranking is high it must be because her beliefs about the performance of other members of her group are inflated, which we expect will lead to a reduction in her individual within-group overconfidence. We test this hypothesis in a laboratory experiment. Using a 2×2 between-subject design, we manipulate the salience of between-group confidence judgments and group identity. We find, as hypothesized, that the salience of between-group confidence judgments significantly reduces within-group individual overconfidence. We also find an equally strong reduction in within-group overconfidence from the group identity manipulation. For managers whose goal is to improve calibration of their employees, our results imply that activities promoting comparisons between groups, e.g., between firms or between teams within a firm, and strengthening organizational identity should be helpful.

Self-serving biases in beliefs about collective outcomes

“…The third row of Table 3 shows the objective expected value of the assets conditional on the signal. 22 Average prices are substantially higher than the expected value, in particular for markets that received a negative signal. Prices express even more optimism than the posterior beliefs documented in the Collective condition (69.5 for positive signals and 46.5 for negative signals, see Table 2), an estimate for what the beliefs in the Market condition might have been before subjects start trading.…”

Controlling Product Risks When Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation

“…For an overview of, and references on, theoretical, experimental, and empirical literature on overconfidence, see e.g. Rabin (1998: 31), Grubb (2009Grubb ( : 1773, DellaVigna (2009: 341-344), Sandroni and Squintani (2013:151-153), Hoffman andPost (2014: 23), Fellner-Röhling andKrügel (2014), and Brookins et al (2014).…”

Optimal Liability when Consumers Mispredict Product Usage

“…Empirical evidence suggests that overconfidence and overoptimism are indeed ubiquitous with respect to a wide range of behaviors (see, e.g., Moore and Healy 2008, Kőszegi 2014, Rabin 1998, Grubb 2009, DellaVigna 2009, Sandroni and Squintani 2013, Fellner-Röhling and Krügel 2014, Brookins et al 2014, Heidhues et al 2016. Underconfidence and pessimism 1 Loewenstein et al (2003Loewenstein et al ( : 1233, for example, argue that the empirically documented negative gap between the predicted extent of smoking by high school students who were already heavy smokers and the same individuals' actual extent of smoking, measured at a later point in time, can be explained both by projection bias (heavy smokers might have been in a nicotine-sated state when making the prediction) and overconfidence in the ability to exercise self-control.…”