[Contact Us]

TITLE: The Trouble with Overconfidence

ABSTRACT:

This paper presents a reconciliation of the three distinct ways in which the research literature has defined overconfidence: (1) overestimation of one’s actual performance, (2) overplacement of one’s performance relative to others, and (3) excessive confidence in the precision of one’s beliefs, or overprecision.  Experimental evidence shows that reversals of the first two (apparent underconfidence) are common, but that tend to occur on different types of tasks.  On difficult tasks, people overestimate their actual performances but also underplace their performances relative to others; on easy tasks, people underestimate their actual performances but overplace their performances relative to others.  These effects can be accounted for with a straightforward Bayesian analysis.  Overprecision appears to be the more robust of the three varieties of overconfidence, and is not as easy to explain as being rational.  Overprecision also appears to have the ironic effect of reducing both of other two types of overconfidence.