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An Evolutionary Justification for Overconfidence

Kim Gannon () and Hanzhe Zhang ()
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Kim Gannon: The Abdul Latif Jameel Poverty Action Lab

No 2019-4, Working Papers from Michigan State University, Department of Economics

Abstract: This paper provides an evolutionary justification for overconfidence. Players are pairwise matched to fight for a resource and there is uncertainty about who wins the resource if they engage in the fight. Players have different confidence levels about their chance of winning although they actually have the same chance of winning in reality. Each player may know or may not know her opponent’s confidence level. We characterize the evolutionary stable equilibrium, represented by players’ strategies and distribution of confidence levels. Under different informational environments, majority of players are overconfident, i.e. overestimate their chance of winning. We also characterize the evolutionary dynamics and the rate of convergence to the equilibrium.

Keywords: overconfidence; evolutionary game (search for similar items in EconPapers)
JEL-codes: C73 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-evo, nep-gth and nep-ore
Date: 2019-04-25
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Persistent link: https://EconPapers.repec.org/RePEc:ris:msuecw:2019_004

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