True overconfidence: The inability of rational information processing to account for apparent overconfidence

TY - JOUR

T1 - True overconfidence

T2 - The inability of rational information processing to account for apparent overconfidence

AU - Merkle, Christoph

AU - Weber, Martin

PY - 2011/11/1

Y1 - 2011/11/1

N2 - The better-than-average effect describes the tendency of people to perceive their skills and virtues as being above average. We derive a new experimental paradigm to distinguish between two possible explanations for the effect, namely rational information processing and overconfidence. Experiment participants evaluate their relative position within the population by stating their complete belief distribution. This approach sidesteps recent methodology concerns associated with previous research. We find that people hold beliefs about their abilities in different domains and tasks which are inconsistent with rational information processing. Both on an aggregated and an individual level, they show considerable overplacement. We conclude that overconfidence is not only apparent overconfidence but rather the consequence of a psychological bias.

AB - The better-than-average effect describes the tendency of people to perceive their skills and virtues as being above average. We derive a new experimental paradigm to distinguish between two possible explanations for the effect, namely rational information processing and overconfidence. Experiment participants evaluate their relative position within the population by stating their complete belief distribution. This approach sidesteps recent methodology concerns associated with previous research. We find that people hold beliefs about their abilities in different domains and tasks which are inconsistent with rational information processing. Both on an aggregated and an individual level, they show considerable overplacement. We conclude that overconfidence is not only apparent overconfidence but rather the consequence of a psychological bias.

KW - Bayesian updating

KW - Belief distribution

KW - Better-than-average effect

KW - Overconfidence

KW - Overplacement

UR - http://www.scopus.com/inward/record.url?scp=80053286378&partnerID=8YFLogxK

U2 - 10.1016/j.obhdp.2011.07.004

DO - 10.1016/j.obhdp.2011.07.004

M3 - Journal article

AN - SCOPUS:80053286378

SN - 0749-5978

VL - 116

SP - 262

EP - 271

JO - Organizational Behavior and Human Decision Processes

JF - Organizational Behavior and Human Decision Processes

IS - 2

ER -