Friday, June 19, 2009

Confidence and Overconfidence

This is interesting. I have always been overconfident. In fact, I brag about my skills at tasks that I actually know I am not very good at. (Ask Angus about the Putt-Putt incident, which is just one of many...)

Now I find out I can blame my dad? Excellent.

Forgetting We Forget: Overconfidence and Memory

Keith Marzilli Ericson
Harvard Working Paper, February 2009

Do individuals have unbiased beliefs, or are they over- or underconfident? Overconfident individuals may fail to prepare optimally for the future, and economists who infer preferences from behavior under the assumption of unbiased beliefs will make mistaken inferences. This paper documents overconfidence in a new domain, prospective memory, using an experimental design that is more robust to potential confounds than previous research. Subjects chose between smaller automatic payments and larger payments they had to remember to claim at a six-month delay. In a large sample of college and MBA students at two different universities, subjects make choices that imply a forecast of a 76% claim rate, but only 53% of subjects actually claimed the payment.


Heritability of Overconfidence

David Cesarini, Magnus Johannesson, Paul Lichtenstein & Björn Wallace
Journal of the European Economic Association, April 2009, Pages 617-627

Empirical evidence suggests that people on average overestimate their own ability in a variety of circumstances. Little is known, however, about the origins of such overconfidence. To shed some light on this issue, we use the classic twin design to estimate the genetic and environmental contributions to individual differences in overconfidence. We collect data on overconfidence among 460 twin pairs. Overconfidence is measured as the difference between the perceived and actual rank in cognitive ability. Cognitive ability is measured using a 20-minute test of general intelligence. We find a highly significant joint effect of genes and common environment, but our estimates of the relative contributions of genetic and common environmental variation are less precise. According to our point estimates, genetic differences explain 16–34% of the variation in overconfidence depending on the definition of overconfidence used and common environmental differences explain 5–11%.

(Nod to Kevin L)


Tom said...

That last one means I'm not as smart as I think I am. Thanks for the buzz kill, Mungowitz!

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