Abstract
This paper presents a new incentive compatible method for measuring confidence in own knowledge. 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 calibrated if he or she chooses the third alternative. Experimental results show that subjects, on average, exhibit underconfidence about their own knowledge when the incentive compatible mechanism is used. Their confidence in own knowledge does not depend on their attitude towards risk/ambiguity.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
In this case, subjects state confidence intervals without any knowledge whether too wide or too narrow intervals will increase or decrease their monetary payoffs. Since subjects do not know how their choice of confidence intervals affects future monetary payoffs, they do not have financial incentives for revealing true confidence intervals.
Although subjects see the number n, they are not informed that this is exactly the number of their correct answers.
References
Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American Economic Review, 89(1), 306–318.
Cesarini, D., Sandewall, O., & Johannesson, M. (2006). Confidence interval estimation tasks and the economics of overconfidence. Journal of Economic Behavior and Organization, 61, 453–470.
Erev, I., Wallsten, T., & Budescu, D. (1994). Simultaneous over- and underconfidence: The role of error in judgment processes. Psychological Review, 101, 519–527.
Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178.
Gigerenzer, G., Hoffrage, U., & Kleinbölting, H. (1991). Probabilistic mental models: A Brunswikian theory of confidence. Psychological Review, 98, 506–528.
Griffin, D., & Tversky, A. (1992). The weighing of evidence and the determinants of confidence. Cognitive Psychology, 24, 411–435.
Heath, C., & Tversky, A. (1991). Preference and belief: Ambiguity and competence in choice under uncertainty. Journal of Risk and Uncertainty, 4(1), 5–28.
Hoelzl, E., & Rustichini, A. (2005). Overconfident: Do you put your money on it? Economic Journal, 115(503), 305–318.
Holt, C., & Laury, S. (2002). Risk aversion and incentive effects. American Economic Review, 92(5), 1644–1655.
Juslin, P. (1994). The overconfidence phenomenon as a consequence of informal experimenter-guided selection of almanac items. Organizational Behavior and Human Decision Processes, 57, 226–246.
Juslin, P., Winman, A., & Olsson, H. (2000). Naïve empiricism and dogmatism in confidence research: A critical examination of the hard – easy effect. Psychological Review, 107, 384–396.
Keren, G. (1991). Calibration and probability judgments: Conceptual and methodological issues. Acta Psychologica, 77, 217–273.
Kirchler, E., & Maciejovsky, B. (2002). Simultaneous over- and underconfidence: Evidence from experimental asset markets. Journal of Risk and Uncertainty, 25(1), 65–85.
Krajc, M., & Ortmann, A. (2008). Are the unskilled really that unaware? An alternative explanation. Journal of Economic Psychology, forthcoming.
Kruger, J. (1999). Lake Wobegon be gone! The ‘below – average effect’ and the egocentric nature of comparative ability judgments. Journal of Personality and Social Psychology, 77(2), 221–232.
Lichtenstein, S., & Fischhoff, B. (1977). Do those who know more also know more about how much they know? Organizational Behavior and Human Performance, 20, 159–183.
Russo, J. E., & Schoemaker, P. J. (1992). Managing overconfidence. Sloan Management Review, 33, 7–17.
Soll, J. (1996). Determinants of overconfidence and miscalibration: The roles of random error and ecological structure. Organizational Behavior and Human Decision Processes, 65, 117–137.
Suantak, L., Bolger, F., & Ferrell, W. (1996). The ‘hard – easy effect’ in subjective probability calibration. Organizational Behavior and Human Decision Processes, 67, 201–221.
Viscusi, W. Kip, & Zeckhauser, R. J. (2006). National survey evidence on disasters and relief: Risk beliefs, self-interest, and compassion. Journal of Risk and Uncertainty, 33, 13–36.
Winman, A. (1997). The importance of item selection in ‘knew-it-all-along’ studies of general knowledge. Scandinavian Journal of Psychology, 38, 63–72.
Yates, J. F. (1990). Judgment and decision making. Englewood Cliffs, NJ: Prentice.
Acknowledgement
I would like to thank the editor and one anonymous referee for extensive comments on the previous version of this paper. I am also grateful to Ganna Pogrebna for programming the experiment in z-Tree and to Steffen Altmann, Franziska Heusi and Matthias Wibral for their assistance in running the experimental sessions.
Author information
Authors and Affiliations
Corresponding author
Appendix
Appendix
1.1 Experimental instructions
Dear participant,
You are about to participate in the experiment on individual decision making. The experiment will last about 1 h. Your payoff will depend only on your decisions and the realization of random events (it will not be affected by the decisions of other participants in the room).
You will be given 19 problems and in each problem you need to choose “Left option”, “Right option” or “Both alternatives are the same”. If you choose “Both alternatives are the same”, a computer will select either “Left option” or “Right option” at random. The problems will appear one by one on your computer screen. The example of a typical problem is given below:
Problem 5
Your payoff is determined at the end of the experiment (when all participants answered all 19 questions). We will give one of the participants a box that contains cards numbered from 1 to 19. The participant will draw one card from this box. The number on this card will determine one of 19 problems. This problem (together with your choice) will reappear on your computer screen. Then another contestant (it could be you!) will draw a card from the box THAT YOU HAVE CHOSEN in this problem. The color of this card will determine your payoff.
For example, suppose that the first drawn card has number 5 and problem 5 presented above reappears on your screen. And suppose that you have chosen “Right option” in this problem. Then one of the contestants will be asked to draw one card from Box J. If this card is blue, your payoff in the experiment is 40 CHF. If this card is yellow, your payoff in the experiment is 1 CHF.
Your payoff will be paid out in cash at the end of the experiment. All boxes used in the experiment are available for inspection after the experiment. If you have any further questions, please ask them now.
Rights and permissions
About this article
Cite this article
Blavatskyy, P.R. Betting on own knowledge: Experimental test of overconfidence. J Risk Uncertain 38, 39–49 (2009). https://doi.org/10.1007/s11166-008-9048-7
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11166-008-9048-7