Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262335 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
ECONtribute Discussion Paper No. 173
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
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
Subjects: 
Cognitive Uncertainty
Overconfidence
Overplacement
Cognitive Noise
Experiments
JEL: 
D91
C91
D83
Document Type: 
Working Paper

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