Mispricing Through Misconfidence

Burak Uras, Niccolò Zaccaria and Sigrid Suetens

No 2026_103, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: "This paper investigates the impact of misconfidence on price stickiness in markets charac- terized by strategic complementarities. Misconfidence denotes the tendency of cognitively able individuals to underestimate the cognitive ability of others. In an experiment, we first measure cognitive ability and misconfidence, and then have participants make price choices in a market. We find that prices in markets with at least one misconfident participant de- viate significantly more from equilibrium levels than in markets composed exclusively of confident, cognitively able agents. Importantly, misconfident individuals are no more prone to self-assessment errors than others, indicating that misconfidence constitutes a distinct cognitive bias—fundamentally different from conventional forms of overconfidence or un- derconfidence."

Keywords: Price stickiness; strategic complementarity; controlled experiments; beliefs (search for similar items in EconPapers)
JEL-codes: E71 (search for similar items in EconPapers)
Pages: 47
Date: 2026-02-13
New Economics Papers: this item is included in nep-com, nep-exp and nep-neu
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Working Paper: Mispricing Through Misconfidence (2025)
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