Can Wishful Thinking Explain Evidence for Overconfidence? An Experiment on Belief Updating

Uri Gneezy, Moshe Hoffman, Mark A. Lane, John List, Jeffrey Livingston and Michael J. Seiler

Artefactual Field Experiments from The Field Experiments Website

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.

Date: 2022
New Economics Papers: this item is included in nep-cbe and nep-exp
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Citations: View citations in EconPapers (1)

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Journal Article: Can wishful thinking explain evidence for overconfidence? An experiment on belief updating (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:feb:artefa:00753

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