Directly to content
  1. Publishing |
  2. Search |
  3. Browse |
  4. Recent items rss |
  5. Open Access |
  6. Jur. Issues |
  7. DeutschClear Cookie - decide language by browser settings

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

Soldà, Alice ; Ke, Changxia ; von Hippel, William ; Page, Lionel

[img]
Preview
PDF, English - main document
Download (1MB) | Terms of use

Citation of documents: Please do not cite the URL that is displayed in your browser location input, instead use the DOI, URN or the persistent URL below, as we can guarantee their long-time accessibility.

Abstract

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.

Item Type: Working paper
Series Name: Discussion Paper Series / University of Heidelberg, Department of Economics
Volume: 0700
Place of Publication: Heidelberg
Date Deposited: 31 Mar 2021 12:40
Date: March 2021
Number of Pages: 22
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: overconfidence, motivated beliefs, negotiation
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
About | FAQ | Contact | Imprint |
OA-LogoDINI certificate 2013Logo der Open-Archives-Initiative