Overconfidence, underconfidence, and welfare

Takao Asano, Takuma Kunieda, Akihisa Shibata

Research output: Contribution to journalArticle

Abstract

Using a simple framework due to Cooper and John (1988) and Cooper (1999), this paper derives the conditions under which overconfidence and underconfidence of agents lead to Pareto improvement. We show that an agent’s overconfidence in a game exhibiting strategic complementarity and positive spillovers and an agent’s underconfidence in a game exhibiting strategiccomplementarity and negative spillovers can lead to Pareto improvement.

Original languageEnglish
Pages (from-to)372-384
Number of pages13
JournalJournal of Institutional and Theoretical Economics
Volume171
Issue number2
DOIs
Publication statusPublished - Jun 1 2015

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ASJC Scopus subject areas

  • Economics and Econometrics

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