Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/267419 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15682
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We study belief updating about relative performance in an ego-relevant task. Manipulating the perceived ego-relevance of the task, we show that subjects update their beliefs optimistically because they derive direct utility flows from holding positive beliefs. This finding provides a behavioral explanation why and how overconfidence can evolve in the presence of objective information. Moreover, we document that subjects, who received more bad signals, downplay the ego-relevance of the task. Taken together, these findings suggest that subjects use two alternative strategies to protect their ego when presented with objective information.
Subjects: 
motivated beliefs
optimistic belief updating
overconfidence
direct belief utility
Bayes' rule
ex-post rationalization
JEL: 
C91
D83
D84
Document Type: 
Working Paper

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