An adapted version of ”the trust game with revenge” is applied to a Swedish setting. Senders - the first-movers - can keep an endowment of SEK 30, or give fractions or all to an unknown receiver. Donations are multiplied by five before reaching receivers, who may, or may not, send back part...

I show that persistent underconfidence and overconfidence each arise from the combination of Bayesian learning about one's own abilities and rationally choosing to exert more effort when more confident. If an agent believes that greater effort reliably improves outcomes, then the agent learns...