Abstract
The available evidence from numerous studies suggests that overconfidence varies significantly across countries. We develop a model that endogenizes these differences and examines their economic consequences. A crucial determinant of difierences in overconfidence is the degree of expected stability of the environment, with greater changefulness giving rise to more overconfident beliefs. When stability is endogenized, multiple equilibria can emerge, \dynamism" and overconfidence reinforcing each other in one case, stability and realistic self-assessment in another. Evidence from 38 countries is consistent with this relationship. Finally, our model also sheds some light on differences in overconfidence within countries, as well as exploring the interaction between overconfidence and sensitivity to shame.
Keywords
Self-confidence; investment; cultural differences; cultural transmission; shame;
JEL codes
- D03: Behavioral Microeconomics • Underlying Principles
- D83: Search • Learning • Information and Knowledge • Communication • Belief
- Z1: Cultural Economics • Economic Sociology • Economic Anthropology
Replaces
Roberta Dessi, and Xiaojian Zhao, “Over-Confidence, Shame and Investments”, TSE Working Paper, n. 14-516, August 2014.
Roberta Dessi, and Xiaojian Zhao, “Overconfidence, Stability and Investments”, TSE Working Paper, n. 15-580, May 2015, revised September 2017.
Reference
Roberta Dessi, and Xiaojian Zhao, “Overconfidence, Stability and Investments”, Journal of Economic Behavior and Organization, n. 145, January 2018, pp. 474–494.
See also
Published in
Journal of Economic Behavior and Organization, n. 145, January 2018, pp. 474–494