Overconfidence as an interpersonal strategy

Abstract

Standard economic models assume that individuals collect and process information in a way that gives them a relatively accurate perception of reality. However, this assumption is often violated. Data shows that individuals often form positively biased beliefs about themselves, which can have detrimental economic consequences. This thesis aims to explain the persistence of overconfidence in social interactions by showing the existence of strategic benefits of being overconfident that offset its social cost.Using a series of laboratory experiments, this thesis shows that (i) overconfidence emerges primarily when it provides an advantage in social interactions (Chapter 2) and (ii) identify situations in which overconfidence is likely to be socially detrimental (Chapter 3 and 4). This thesis contributes to the literature by enhancing our understanding of the situational determinants of overconfidence in social interactions and lay the foundations to improve policies intended to prevent or limit its negative effects.