Abstract

We test experimentally an explanation of over and under confidence as motivated by (perhaps unconscious) strategic concerns, and find compelling evidence supporting this hypothesis in how participants send and respond to incentivized statements of confidence. In two-player tournaments where the highest score wins, one is very likely to enter when one knows his or her stated confidence is higher than the other player's, but very unlikely when the reverse is true. Consistent with this behavior, stated confidence by males is inflated when deterrence is strategically optimal and is instead deflated by males and females when hustling (encouraging entry) is strategically optimal; this behavior is consistent with the equilibrium of the signaling game. Based on the theory of salient perturbations, we suggest that there is a strategic foundation of overconfidence. Since overconfident statements are used in familiar situations in which it is strategically effective, it may also occur in the absence of strategic benefits, provided the environment is similar.

Reference

Gary Charness (University of California), “Self Confidence and Strategic Behavior”, IAST General Seminar, Toulouse: IAST, March 28, 2013, 15:30–16:30, room MF323.