TITLE:
An Experimental Analysis of Over-Confidence
AUTHORS:
Saoussen Jemaiel, Chokri Mamoghli, Mohamed Walid Seddiki
KEYWORDS:
Over-Confidence; Uncertainty; Monetary Incentives; Experiments
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.3 No.4,
July
24,
2013
ABSTRACT:
The purpose of
this paper is to experimentally demonstrate the existence of the bias of over-confidence
as a human psychological bias. This bias was measured by three methods: the estimation
interval, the frequency estimation method and the method of question with two answer
choices. The estimation interval method finds a very wide bias compared to the other
two methods, but overconfidence persists in the other two methods at lower levels.
In the first experiment, monetary incentives have exacerbated the over-confidence
because of the given compensation. This system has demonstrated that there is a
strong link between over-confidence and risk taking. The second experiment that
used the method of question with two answer choices was given a different pay system
and it was expected that overconfidence will be reduced by monetary incentives but
the results show that the bias is not significantly reduced by these new monetary
incentives. Similarly, the iteration that was made during the first experiment did
not significantly reduce the bias.