Can wishful thinking explain evidence for overconfidence? An experiment on belief updating

Uri Gneezy, Moshe Hoffman, Mark A Lane, John List, Jeffrey A Livingston and Michael Seiler ()

Oxford Economic Papers, 2023, vol. 75, issue 1, 35-54

Abstract: Recent theoretical work shows that the better-than-average effect, where a majority believes their ability to be better than average, can be perfectly consistent with Bayesian updating. However, later experiments that account for this theoretical advance still find behavior consistent with overconfidence. The literature notes that overoptimism can be caused by either overconfidence (optimism about performance), wishful thinking (optimism about outcomes), or both. To test whether the better-than-average effect might be explained by wishful thinking instead of overconfidence, we conduct an experiment that is similar to those used in the overconfidence literature, but removes performance as a potential channel. We find evidence that wishful thinking might explain overconfidence only among the most optimistic subjects and that conservatism is possibly more of a worry; if unaccounted for, overconfidence might be underestimated.

JEL-codes: C91 D91 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: Can Wishful Thinking Explain Evidence for Overconfidence? An Experiment on Belief Updating (2022)
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