Monetary incentives and overconfidence in academic performance: An experimental study

Noemí Herranz-Zarzoso () and Gerardo Sabater-Grande ()
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Noemí Herranz-Zarzoso: LEE and Department of Economics, Universitat Jaume I, Castellón, Spain
Gerardo Sabater-Grande: LEE and Department of Economics, Universitat Jaume I, Castellón, Spain

No 2020/14, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: In this paper, we analyze students’ overconfidence bias regarding potential and actual academic performance under both hypothetical and real monetary incentives. Students enrolled in a Microeconomics course were offered the possibility to set their own goal before performing different types of exams and, immediately after completing them, to postdict their own grade. Controlling for potential driving factors of students’ overconfidence such as their cognitive abilities, academic record, risk preferences, and self-reported academic confidence, we find that real monetary incentives mitigate overestimation of potential achievements and eliminate overestimation of actual achievements. This finding is compelling, given the common interpretation of overconfidence as a conscious bias: if monetary incentives can eliminate subjects’ overconfidence, as our results indicate, it might suggest that overconfidence is not a psychological bias at all. Moreover, the use of real money does not reduce but instead enhances the presence of the Dunning-Kruger bias when we use students’ academic records to measure their actual skill.

Keywords: overconfidence bias; Dunning-Kruger cognitive bias; self-chosen goals; prediction; postdiction; real monetary incentives (search for similar items in EconPapers)
JEL-codes: C93 D03 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2020
New Economics Papers: this item is included in nep-cbe, nep-edu, nep-exp and nep-neu
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Persistent link: https://EconPapers.repec.org/RePEc:jau:wpaper:2020/14

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