Absolute Versus Relative Success: Why Overconfidence Creates an Inefficient Equilibrium.

Soldà, A; Ke, C; von Hippel, W; Page, L

Absolute Versus Relative Success: Why Overconfidence Creates an Inefficient Equilibrium.

Soldà, A Ke, C von Hippel, W Page, L

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Publisher:: SAGE Publications
Publication Type:: Journal Article
Citation:: Psychol Sci, 2021, 32, (10), pp. 1662-1674
Issue Date:: 2021-10

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Field	Value	Language
dc.contributor.author	Soldà, A
dc.contributor.author	Ke, C
dc.contributor.author	von Hippel, W
dc.contributor.author	Page, L https://orcid.org/0000-0002-6020-9733
dc.date.accessioned	2022-03-30T03:06:31Z
dc.date.available	2022-03-30T03:06:31Z
dc.date.issued	2021-10
dc.identifier.citation	Psychol Sci, 2021, 32, (10), pp. 1662-1674
dc.identifier.issn	0956-7976
dc.identifier.issn	1467-9280
dc.identifier.uri	http://hdl.handle.net/10453/155701
dc.description.abstract	Overconfidence is one of the most ubiquitous biases in the social sciences, but the evidence regarding its overall costs and benefits is mixed. To test the possibility that overconfidence might yield important relative benefits that offset its absolute costs, we conducted an experiment (N = 298 university students) in which pairs of participants bargained over the unequal allocation of a prize that was earned through a joint effort. We manipulated confidence using a binary noisy signal to investigate the causal effect of negotiators' beliefs about their relative contribution to the outcome of the negotiation. Our results provide evidence that high levels of confidence lead to relative benefits (how much one earns compared with one's partner) but absolute costs (how much money one receives overall). These results suggest that overconfidence creates an inefficient equilibrium whereby overconfident negotiators benefit over their partners even as they bring about joint losses.
dc.format	Print-Electronic
dc.language	eng
dc.publisher	SAGE Publications
dc.relation.ispartof	Psychol Sci
dc.relation.isbasedon	10.1177/09567976211007414
dc.rights	info:eu-repo/semantics/openAccess
dc.subject	1701 Psychology, 1702 Cognitive Sciences
dc.subject.classification	Experimental Psychology
dc.subject.mesh	Achievement
dc.subject.mesh	Humans
dc.subject.mesh	Negotiating
dc.subject.mesh	Humans
dc.subject.mesh	Negotiating
dc.subject.mesh	Achievement
dc.title	Absolute Versus Relative Success: Why Overconfidence Creates an Inefficient Equilibrium.
dc.type	Journal Article
utslib.citation.volume	32
utslib.location.activity	United States
utslib.for	1701 Psychology
utslib.for	1702 Cognitive Sciences
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	open_access	*
dc.date.updated	2022-03-30T03:06:29Z
pubs.issue	10
pubs.publication-status	Published
pubs.volume	32
utslib.citation.issue	10

Abstract:

Overconfidence is one of the most ubiquitous biases in the social sciences, but the evidence regarding its overall costs and benefits is mixed. To test the possibility that overconfidence might yield important relative benefits that offset its absolute costs, we conducted an experiment (N = 298 university students) in which pairs of participants bargained over the unequal allocation of a prize that was earned through a joint effort. We manipulated confidence using a binary noisy signal to investigate the causal effect of negotiators' beliefs about their relative contribution to the outcome of the negotiation. Our results provide evidence that high levels of confidence lead to relative benefits (how much one earns compared with one's partner) but absolute costs (how much money one receives overall). These results suggest that overconfidence creates an inefficient equilibrium whereby overconfident negotiators benefit over their partners even as they bring about joint losses.

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http://hdl.handle.net/10453/155701