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We study the implications of a particular form of irrationality on the pricing behavior of firms in a monopolistic-competitive market with incomplete information. We assume that firms are overconfident, meaning that they over-estimate their abilities to understand the correct model of the...
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This paper presents a reconciliation of the three distinct ways in which the economic literature has defined overconfidence: (1) overestimation of one's actual performance, (2) overestimation of one's performance relative to others, and (3) overestimation of the quality of one's private signals....
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The status-enhancement theory of overconfidence proposes that overconfidence pervades self-judgment because it helps … of whether their confidence was justified by actual ability (Anderson, Brion, Moore, & Kennedy, 2012). However, those … outweighed any possible status costs, lending further support to the status-enhancement theory …
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Overconfidence is the most prevalent judgment bias. Several studies find that overconfidence can lead to suboptimal decisions on the part of investors, managers, or politicians. This chapter explains which effects are usually summarized as overconfidence, shows how to measure these effects, and...
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