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Betting on own knowledge: Experimental test of overconfidence


Blavatskyy, Pavlo R (2009). Betting on own knowledge: Experimental test of overconfidence. Journal of Risk and Uncertainty, 38(1):39-49.

Abstract

This paper presents a new incentive compatible method for measuring confidence in own know-ledge. This method consists of two parts. First, an individual answers several general knowledge questions. Second, the individual chooses among three alternatives: (1) one question is selected at random and the individual receives a payoff if he or she has answered this question correctly; (2) the individual receives the same payoff with a probability equal to the percentage of correctly answered questions; (3) either the first or the second alternative is selected. The choice of the first (second) alternative reveals overconfidence (underconfidence). The individual is well calibra-ted if he or she chooses the third alternative. Experimental results show that subjects, on avera-ge, exhibit underconfidence about their own knowledge when the incentive compatible mecha-nism is used. Their confidence in own knowledge does not depend on their attitude towards risk/ambiguity.

Abstract

This paper presents a new incentive compatible method for measuring confidence in own know-ledge. This method consists of two parts. First, an individual answers several general knowledge questions. Second, the individual chooses among three alternatives: (1) one question is selected at random and the individual receives a payoff if he or she has answered this question correctly; (2) the individual receives the same payoff with a probability equal to the percentage of correctly answered questions; (3) either the first or the second alternative is selected. The choice of the first (second) alternative reveals overconfidence (underconfidence). The individual is well calibra-ted if he or she chooses the third alternative. Experimental results show that subjects, on avera-ge, exhibit underconfidence about their own knowledge when the incentive compatible mecha-nism is used. Their confidence in own knowledge does not depend on their attitude towards risk/ambiguity.

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16 citations in Web of Science®
18 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2009
Deposited On:18 Jan 2010 13:52
Last Modified:05 Apr 2016 13:37
Publisher:Springer
ISSN:0895-5646
Additional Information:The original publication is available at www.springerlink.com
Publisher DOI:https://doi.org/10.1007/s11166-008-9048-7

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