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An Unlucky Feeling: Overconfidence and Noisy Feedback

Zachary Grossman and David Owens ()

University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: How does overconfidence arise and how does it persist in the face of experience and feedback? In an experimental setting, we examine how individuals’ beliefs about their own performance on a quiz react to noisy, but unbiased feedback. In a control treatment, each participant expresses her beliefs about another participant’s performance, rather than her own. On average, they express accurate posteriors about others’ scores, but they overestimate their own score, believing themselves to have received ‘unlucky’ feedback. However, this driven by overconfident priors, as opposed to biased information processing. We also find that, while feedback improves estimates about the performance on which it is based, this learning does not translate into improved estimates of related performances. This suggests that people use performance feedback to update their beliefs about their ability differently than they do to update their beliefs about their performance, which may contribute to the persistence of overconfidence.

Keywords: overconfidence; overestimation; learning; Bayes rule; biased updating; learning transfer; experiments; quadratic scoring rule; Social and Behavioral Sciences (search for similar items in EconPapers)
Date: 2010-11-11
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Citations: View citations in EconPapers (4)

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Journal Article: An unlucky feeling: Overconfidence and noisy feedback (2012) Downloads
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