Advertisement

Experimental Economics

, Volume 21, Issue 1, pp 72–98 | Cite as

Self-confidence and strategic behavior

  • Gary Charness
  • Aldo Rustichini
  • Jeroen van de Ven
Original Paper

Abstract

We suggest that overconfidence (conscious or unconscious) is motivated in part by strategic considerations, and test this experimentally. We find compelling supporting evidence in the behavior of participants who send and respond to others’ statements of confidence about how well they have scored on an IQ test. In two-player tournaments where the higher score wins, a player is very likely to choose to compete when he knows that his own stated confidence is higher than the other player’s, but rarely when the reverse is true. Consistent with this behavior, stated confidence is inflated by males when deterrence is strategically optimal and is instead deflated (by males and females) when luring (encouraging entry) is strategically optimal. This behavior is consistent with the equilibrium of the corresponding signaling game. Overconfident statements are used in environments that seem familiar, and we present evidence that suggests that this can occur on an unconscious level.

Keywords

Self-confidence Overconfidence Strategic deterrence Unconscious behavior Self-deception Luring Experiment 

JEL Classification

A12 C91 D03 D82 

Notes

Acknowledgements

We acknowledge helpful comments from three anonymous referees, the Editor (Lise Vesterlund), and from Alex Brown, Juan Carrillo, Peter Cramton, Catherine Eckel, Enrique Fatas, Sanjeev Goyal, Philippe Jehiel, Juanjuan Meng, Markus Möbius, Klaus Schmidt, Lones Smith, Vernon Smith, Joel Sobel, Anton Suvorov, Cheng-Zhong Qin, Daniel Zizzo, and seminar participants at several universities including SITE (Stanford), USC, Toulouse, Peking University, Jinan University, University of Texas A&M, University of Aarhus, Ca’Foscari, Chapman University, University of East Anglia, Cambridge University, Goethe University (Frankfurt), New Economic School (Moscow), University of Maryland, CesIfo, Maastricht University, Tilburg University, Stockholm University, University of Michigan, Pompeu Fabra, Autonoma, University of Southampton, Washington University (St. Louis), and University of Wisconsin.

Supplementary material

10683_2017_9526_MOESM1_ESM.pdf (571 kb)
Supplementary material 1 (pdf 570 KB)

References

  1. Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics, 116(1), 261–292.CrossRefGoogle Scholar
  2. Baumeister, R. F. (1998). The self. In D. Gilbert, S. Fiske, & G. Lindzey (Eds.), The handbook of social psychology. Boston: McGraw-Hill.Google Scholar
  3. Benoit, Jean-Pierre, & Dubra, Juan. (2011). Apparent overconfidence. Econometrica, 79(5), 1591–1625.CrossRefGoogle Scholar
  4. Berglas, S., & Jones, E. (1978). Drug choice as a self-handicapping strategy in response to noncontingent success. Journal of Personality and Social Psychology, 36, 405–417.CrossRefGoogle Scholar
  5. Burks, S., Carpenter, J., Goette, L., & Rustichini, A. (2009). Cognitive abilities explain economic preferences, strategic behavior and job performance. Proceedings of the National Academy of Sciences, 106(19), 7745–7750.CrossRefGoogle Scholar
  6. Burks, S., Carpenter, J., Goette, L., & Rustichini, A. (2013). Overconfidence and social signaling. The Review of Economic Studies, 80(3), 949–983.CrossRefGoogle Scholar
  7. Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American Economic Review, 89, 306–318.CrossRefGoogle Scholar
  8. Charness, G., & Gneezy, U. (2010). Portfolio choices and risk attitudes. Economic Inquiry, 48, 133–146.CrossRefGoogle Scholar
  9. Charness, G., & Gneezy, U. (2012). Strong evidence for gender differences in risk-taking. Journal of Economic Behavior and Organization, 83, 50–58.CrossRefGoogle Scholar
  10. Charness, G., Rustichini, A., & van de Ven J. (2013). Self-Confidence and Strategic Behavior, CESifo Working paper no. 4517.Google Scholar
  11. Clark, J., & Friesen L. (2009). Overconfidence in forecasts of own performance: An experimental study. Economic Journal, 119(354), 229–251.Google Scholar
  12. Compte, O., & Postlewaite, A. (2004). Confidence-enhanced performance. American Economic Review, 94(5), 1536–1557.CrossRefGoogle Scholar
  13. Crawford, V., & Iriberri, N. (2007). Level-k auctions: Can boundedly rational strategic thinking explain the winner’s curse and overbidding in private-value auctions. Econometrica, 75, 1721–1770.CrossRefGoogle Scholar
  14. Crawford, V., & Sobel, J (1982). Strategic information transmission. Econometrica, 50(6), 1431–1451.Google Scholar
  15. Dunning, D., Meyerowitz, J. A., & Holzberg, A. D. (1989). Ambiguity and self-evaluation: The role of idiosyncratic trait definitions in self-serving assessments of ability. Journal of Personality and Social Psychology, 57(6), 1082–1090.CrossRefGoogle Scholar
  16. Ewers, M. (2012). Information and competition entry. IZA discussion paper, 6411.Google Scholar
  17. Ewers, M., & Zimmerman, F. (2015). Image and misreporting. Journal of the European Economic Association, 13(2), 363–380.Google Scholar
  18. Gneezy, U., Niederle, M., & Rustichini, A. (2003). Performance in competitive environments: Gender differences. Quarterly Journal of Economics, 118(3), 1049–1074.CrossRefGoogle Scholar
  19. Gneezy, U., & Rustichini, A. (2004). Gender and competition at a young age. American Economic Review, 94(2), 377–381.CrossRefGoogle Scholar
  20. Gurdal, M., Miller, J., & Rustichini A. (2013). Why Blame? Journal of Political Economy, 121(6), 1205–1247.Google Scholar
  21. Heger, S., & Papageorge, N. (2015). We should totally open a restaurant: How optimism and overconfidence affect beliefs. Mimeo.Google Scholar
  22. Hoelzl, E., & Rustichini, A. (2005). Overconfident: Do you put your money on it? Economic Journal, 115(503), 305–318.CrossRefGoogle Scholar
  23. Jehiel, P. (2005). Analogy-based expectation equilibrium. Journal of Economic Theory, 123(2), 81–104.CrossRefGoogle Scholar
  24. Kartik, N. (2009). Strategic communication with lying costs. Review of Economic Studies, 76, 1359–1395.CrossRefGoogle Scholar
  25. Kolditz, T. A., & Arkin, R. M. (1982). An impression management interpretation of the self-handicapping strategy. Journal of Personality and Social Psychology, 43, 492–502.CrossRefGoogle Scholar
  26. Koszegi, B. (2006). Ego utility, overconfidence, and task choice. Journal of the European Economic Association, 4(4), 673–707.CrossRefGoogle Scholar
  27. Kruger, J. (1999). Lake Wobegon be gone! The below-average effect and the egocentric nature of comparative ability judgements. Journal of Personality and Social Psychology, 77(2), 221–232.CrossRefGoogle Scholar
  28. Leary, M. (1999). The social and psychological importance of self-esteem. In R. M. Kowalski, & M. R. Leary (Eds.), The social psychology of emotional and behavioral problems: Interfaces of social and clinical psychology (pp. 197–222).Google Scholar
  29. Leary, M. R., Tambor, S. Terdal, & Downs, D. (1995). Self-esteem as an interpersonal monitor. Journal of Personality and Social Psychology, 68, 518–530.CrossRefGoogle Scholar
  30. Ludwig, S., & Thoma, C. (2012). Do women have more shame than men: An Experiment. Unpublished manuscript.Google Scholar
  31. Lundeberg, M., Fox, P., & Puncochar, J. (1994). Highly confident but wrong: Gender differences and similarities in confidence judgments. Journal of Educational Psychology, 86(1), 114–121.CrossRefGoogle Scholar
  32. Moore, D., & Healy, P. J. (2008). The trouble with overconfidence. Psychological Review, 115(2), 502–517.CrossRefGoogle Scholar
  33. Myerson, R. (1991). Game theory: Analysis of conflict. Cambridge, MA: Harvard University Press.Google Scholar
  34. Niederle, M., & Vesterlund, L. (2007). Do women shy away from competition? Do men compete too much? Quarterly Journal of Economics, 122(3), 1067–1101.CrossRefGoogle Scholar
  35. Rabin, M., & Schrag, J. (1999). First impressions matter: A model of confirmatory bias. Quarterly Journal of Economics, 114, 37–82.CrossRefGoogle Scholar
  36. Raven, J. C. (2000). Ravens advanced progressive matrices (APM). Upper Saddle River: Pearson.Google Scholar
  37. Samuelson, L. (2001). Analogies, adaptation, and anomalies. Journal of Economic Theory, 97(2), 320–366.CrossRefGoogle Scholar
  38. Shipman, C., & Kay, K. (2009). Womenomics. New York: Harper Collins.Google Scholar
  39. Svenson, O. (1981). Are we all less risky and more skillful than our fellow drivers? Acta Psychologica, 47, 143–148.CrossRefGoogle Scholar
  40. Trivers, R. (1985). Social evolution. Menlo Park, CA: Benjamin Cummings.Google Scholar
  41. Van den Steen, E. (2004). Rational overoptimism (and other biases). American Economic Review, 94(4), 1141–1151.CrossRefGoogle Scholar
  42. Vialle, I., Santos-Pinto, L., & Rullière J. L. (2011). Self-confidence and teamwork: An experimental test. Mimeo.Google Scholar
  43. Weinstein, N. D. (1980). Unrealistic optimism about future life events. Journal of Personality and Social Psychology, 39(5), 806–820.CrossRefGoogle Scholar
  44. Zábojník, J. (2004). A model of rational bias in self-assessments. Economic Theory, 23(2), 259–282.CrossRefGoogle Scholar

Copyright information

© Economic Science Association 2017

Authors and Affiliations

  • Gary Charness
    • 1
  • Aldo Rustichini
    • 2
  • Jeroen van de Ven
    • 3
  1. 1.University of California at Santa BarbaraSanta BarbaraUSA
  2. 2.University of MinnesotaMinneapolisUSA
  3. 3.University of Amsterdam and Tinbergen InstituteAmsterdamThe Netherlands

Personalised recommendations