Overconfident for real? Proper scoring for confidence intervals

Michal Krawczyk

No 2011-15, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: Studies show that people tend to provide overly narrow confidence intervals for unknown values. Such a form of overconfidence would have an important impact on financial markets, among other domains, leading i.a. to excessive trading. The present study is one of the very few that try to incentivize reporting correct confidence intervals. To this end, a reward scheme is proposed, based on a combination of asymmetric loss functions minimized by appropriate quantiles of a probability distribution. In the experiment I find that incentivized subjects provide wider confidence intervals, obtaining a higher hit rate than the control group. The effect is stronger than that of feedback and explicit warning. These findings suggest that the overly narrow confidence intervals reported elsewhere are partly due to an insufficient mental effort that subjects exert and that they can be induced to do so by the proposed incentive scheme.

Keywords: overconfidence; calibration; confidence intervals; proper scoring rules (search for similar items in EconPapers)
JEL-codes: C44 C91 D03 D84 G17 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011
New Economics Papers: this item is included in nep-cbe and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP55.pdf First version, 2011 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2011-15

Access Statistics for this paper

More papers in Working Papers from Faculty of Economic Sciences, University of Warsaw Contact information at EDIRC.
Bibliographic data for series maintained by Marcin Bąba (mbaba@wne.uw.edu.pl).