The Influence of Overconfidence and Competition Neglect On Entry Into Competition

Katharina Schüssler
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Katharina Schüssler: LMU Munich

No 87, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: I investigate whether two mechanisms leading to biased beliefs about success, overconfidence and competition neglect, influence decisions to enter competitive environments. I use a controlled laboratory setting that allows to elicit belief distributions related to absolute as well as relative overconfidence to study it comprehensively and introduce two treatment variations: First, some participants receive detailed performance feedback addressing absolute and relative overconfidence before making their decision. Second, I vary whether the competition group consists of all potential competitors or only of individuals who also chose to compete. I find that there is systematic heterogeneity in perception biases. In addition, both mechanisms influence individuals\' decisions. However, choices are closely tied to previous performance and assessments, and there are no significant gender differences.

Keywords: competition neglect; competitive behavior; feedback; overconfidence (search for similar items in EconPapers)
JEL-codes: C91 D83 J16 (search for similar items in EconPapers)
Date: 2018-03-26
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-neu
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