Cognitive uncertainty and overconfidence

Arbeitspapier

Overconfidence is one of the most ubiquitous cognitive bias. There is copious evidence of overconfidence being relevant in a diverse set of economic domains. In this paper, we relate the recent concept of cognitive uncertainty with overconfidence. Cognitive uncertainty represents a decision maker's uncertainty about her action optimality. We present a simple model of overconfidence based on the concept of cognitive uncertainty. The model relates the concepts theoretically and generates testable predictions. We propose an experimental paradigm to cleanly identify such theoretical relationships. In particular, we focus on overplacement and we find that, as predicted, cognitive uncertainty is inversely related to overplacement. Exogenously manipulating cognitive uncertainty through compound choices, we are able to show a causal relationship with overplacement. Evidence on these relationships allows to link overplacement with other behavioral anomalies explained through cognitive uncertainty

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECONtribute Discussion Paper ; No. 173

Classification and Topics

• Classification: Wirtschaft ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Design of Experiments: Laboratory, Individual ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: Cognitive Uncertainty ; Overconfidence ; Overplacement ; Cognitive Noise ; Experiments

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Amelio, Andrea
• Event: Veröffentlichung
• (who): University of Bonn and University of Cologne, Reinhard Selten Institute (RSI)
• (where): Bonn and Cologne
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/262335
• Last update: 10.03.2025, 11:41 AM CET