Overconfidence, Underconfidence, and Welfare

Takao Asano (), Takuma Kunieda and Akihisa Shibata
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Takao Asano: Okayama University

No 903, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: Using a simple framework of Cooper and John (1988) and Cooper (1999), this paper derives the conditions under which overconfidence and underconfidence of agents lead to Pareto improvement. We show that an agent’s overconfidence in a game exhibiting strategic complementarity and positive spillovers and an agent’s underconfidence in a game exhibiting strategic complementarity and negative spillovers can lead to Pareto improvement.

Keywords: overconfidence; underconfidence; strategic complementarity; strategic substitutability; positive spillover; negative spillover (search for similar items in EconPapers)
JEL-codes: C72 D62 (search for similar items in EconPapers)
Pages: 22pages
Date: 2014-09
New Economics Papers: this item is included in nep-cbe, nep-gth, nep-hpe and nep-mic
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Related works:
Journal Article: Overconfidence, Underconfidence, and Welfare (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:903

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