The Culture of Overconfidence
V. Bhaskar and
Caroline Thomas ()
American Economic Review: Insights, 2019, vol. 1, issue 1, 95-110
Perceptions of overconfidence can exacerbate the tendency of reputationally concerned leaders to continue bad projects. Reputation concerns alone induce a bias toward inefficient continuation in a leader receiving information privately. When she is overconfident—or holds a more favorable prior than observers—this tendency is aggravated. This remains true even when she is not really overconfident, but merely perceived to be so. Higher-order beliefs regarding overconfidence induce inefficient equilibrium selection even when there is "almost common knowledge" that the leader is not overconfident. This provides a novel perspective on how culture selects among equilibria: via higher-order beliefs.
JEL-codes: D82 D83 Z13 (search for similar items in EconPapers)
Note: DOI: 10.1257/aeri.20180200
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to AEA members and institutional subscribers.
Working Paper: The culture of overconfidence (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:aea:aerins:v:1:y:2019:i:1:p:95-110
Ordering information: This journal article can be ordered from
Access Statistics for this article
American Economic Review: Insights is currently edited by Amy Finkelstein
More articles in American Economic Review: Insights from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().