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CESR Seminar & Brown Bag Series in conjunction with the BEHAVIORAL SCIENCE & WELLBEING POLICY INITIATIVE presents Han Bleichrodt from Erasmus School of Economics.
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Abstract: Overconfident behavior, the excessive willingness to bet on one’s performance, may be driven by optimistic beliefs and/or ambiguity attitudes. Separating these factors is key for understanding and correcting overconfident behavior, as they may call for different corrective actions. We present a method to do so, which we implement in two incentivized experiments. The first experiment shows the importance of ambiguity attitudes for overconfident behavior. Optimistic ambiguity attitudes (ambiguity seeking) counterbalanced the effect of pessimistic beliefs, leading to neither over- nor underconfident behavior. The second experiment applies our method in contexts where
overconfident behavior is expected to vary: easy vs. hard tasks. Our results showed that task difficulty affected both beliefs and ambiguity attitudes. However, while beliefs were more optimistic for relative performance (rank) and more pessimistic for absolute performance (score) on easy tasks compared to hard tasks, ambiguity attitudes were always more optimistic on easy tasks for both absolute and relative performance. Our findings show the subtle interplay between beliefs and ambiguity attitudes: they can reinforce or offset each other, depending on the context, increasing or lowering overconfident behavior.
Bio: Han Bleichrodt is full professor of economics at the University of Alicante, Spain. Before he was full professor at Erasmus University in Rotterdam, the Netherlands and the Australian National University in Canberra, Australia. His main areas of research are behavioral economics and health economics, in particular decision under risk and ambiguity, intertemporal choice and the measurement of quality of life. He has published 100 articles in peer reviewed journals like Econometrica, American Economic Review, Management Science, Journal of Economic Theory, Review of Economics and Statistics, and Journal of Health Economics. He has served on the boards of various journals and was the department editor of Decision Analysis at Management Science from 2014-2018.