On the Evolution of Overconfidence and Entrepreneurs

Antonio Bernardo and Ivo Welch

Yale School of Management Working Papers from Yale School of Management

Abstract: This paper explains why seemingly irrational overconfident behavior can persist. Information aggregation is poor in groups in which most individuals herd. By ignoring the herd, the actions of overconfident individuals ("entrepreneurs") convey their private information. However, entrepreneurs make mistakes and thus die more frequently. The socially optimal proportion of entrepreneurs trades off the positive information externality against high attrition rates of entrepreneurs, and depends on the size of the group, on the degree of overconfidence, and on the accuracy of individuals' private information. The stationary distribution trades off the fitness of the group against the fitness of overconfident individuals.

Keywords: Evolution; Overconfidence; Behavioral Economics (search for similar items in EconPapers)
Date: 2001-07-01, Revised 2003-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.som.yale.edu/icfpub/publications/2416.pdf (application/pdf)

Related works:
Working Paper: On the Evolution of Overconfidence and Entrepreneurs (2003)
Journal Article: On the Evolution of Overconfidence and Entrepreneurs (2001)
Working Paper: On the Evolution of Overconfidence and Entrepreneurs (2001)
Working Paper: On the Evolution of Overconfidence and Entrepreneurs (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ysm:wpaper:ysm211

Access Statistics for this paper

More papers in Yale School of Management Working Papers from Yale School of Management Contact information at EDIRC.
Bibliographic data for series maintained by ().