Strategic Competition and Self-Confidence

Stefanie Brilon, Simona Grassi (), Manuel Grieder () and Jonathan F. Schulz ()
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Simona Grassi: Department of Economics, King’s Business School, King’s College London, London WC2B4BG, United Kingdom
Manuel Grieder: Faculty of Economics, UniDistance Suisse, 3900 Brig, Switzerland; School of Management and Law, Zurich University of Applied Sciences (ZHAW), Center for Energy and the Environment, 8400 Winterthur, Switzerland
Jonathan F. Schulz: Department of Economics, George Mason University, Fairfax, Virginia 22030

Management Science, 2024, vol. 70, issue 1, 507-525

Abstract: This study tests the hypothesis that competitive strategic interactions foster overconfidence. We experimentally compare a strategic environment in which players have an incentive to overstate their own ability to deter competitors and avoid competition with a nonstrategic environment in which these incentives are removed. Subsequently, we measure the participants’ confidence. Overconfidence persists in the former environment but vanishes in the latter. We provide evidence for three mechanisms that contribute to the persistence of overconfidence. First, participants who win uncontested update their confidence as if they had won in an actual competition. Second, by contrast, participants who do not compete do not update their confidence, thus creating an asymmetry in updating. Third, inflated ability messages are “contagious” because they affect positively how their receivers update their confidence. We provide empirical evidence on the role of these mechanisms to explain the Dunning–Kruger effect and gender differences in confidence.

Keywords: overconfidence; competition; strategic deterrence; self-deception (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:1:p:507-525

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