Bayesian Overconfidence

1998-08-01T00:00:00Z (GMT) by Paul J. Healy Don A. Moore
We study three distinct measures of overconfidence: (1) overestimation of one's performance, (2) overplacement of one's performance relative to others, and (3) overprecision in one's belief about private signals. A new set of experiments verifies a strong negative link between overestimation and overprecision that depends crucially on task difficulty (the `hard-easy' effect). We present a simple Bayesian model in which agents are uncertain about the underlying task difficulty. This model correctly predicts the observed regularities. Thus, we capture several observed patterns of overconfidence without assuming any implicit behavioral biases.