The attraction of uncertainty: Interactions between skill and levels of uncertainty in market-entry games

Abstract

The experimental market entry paradigm has been used to illuminate the role of self-assessed skill in risk taking. Specifically, success only accompanies entry if a participant is one of the better ranked entrants on the skill criterion. We investigate what happens when participants face an additional source of uncertainty that perturbs relative skill rankings. Interestingly, this has asymmetric effects. On average, chances of success are increased for those with low rankings but decreased for those with high rankings. Thus, we predicted that the additional uncertainty would lead to more entry by the former but less by the latter. Our data supported the first prediction but, for those with high skill rankings, the existence of additional uncertainty made little difference. Finally, although we observed "excess entry" (i.e., too many participants entered markets), this could not be attributed to overconfidence. We conclude by contrasting our results with others in the literature.

Identifying the Effects of Unjustified Confidence versus Overconfidence: Lessons Learned from Two Analytic Methods

“…In other cases, authors seem to equate the effects of confidence and OC. Karelaia and Hogarth (), for example, defined confidence as estimated score minus actual score; that is, they are defining confidence as what we are referring to as OC. They proceed to examine the effect of confidence on entry into markets, while controlling for knowledge, which is equivalent to our UJC analysis.…”

Competitive Dynamics in Forecasting: The Interaction of Skill and Uncertainty

“…Moreover, our main empirical result that low‐skilled analysts exhibit greater increase in deviation‐from‐consensus when market volatility increases is also consistent with experimental evidence from market‐entry contests where payoffs are determined by relative performance (e.g., Camerer & Lovallo, ). In one such study, Karelaia and Hogarth () investigated the effects of a random perturbation of relative performance rankings. They found that low‐skilled participants took greater risk by entering the market more in the presence as opposed to absence of this factor.…”

Teacher's perceptions of creativity and teaching creative thinking in the secondary school classroom: possibilities and tensions

“…He attributed this aversion to the level of competence they feel in the task in hand. Karelaia and Hogarth (2010) suggested such aversion is withstood when one feels "expert. " Sting, Loch and Stempfhuber (2015) talked of providing "psychological safety" to avoid the fear of negative repercussions to selfworth.…”