Gender Robustness of Overconfidence and Excess Entry

Danková, Katarína and Servátka, Maroš (2019): Gender Robustness of Overconfidence and Excess Entry.

Abstract

Camerer and Lovallo (1999; henceforth CL) present thought-provoking experimental evidence that overconfidence might lead to excess entry into markets. As their findings are based on the majority of sessions exclusively consisting of male participants, we conduct two experiments in an attempt to replicate their study while including both men and women in all of our sessions. Our Experiment 1 closely follows CL design whereas Experiment 2 employs a gender-neutral addition task and provides more control in assessing gender differences in overconfidence and excess entry. Using participants of both genders we are unable to replicate CL’s main finding that market entry decisions are driven by overconfidence. Contrary to CL, where self-selection increases the entry rate, in our Experiment 1 self-selection leads to less entry. This result is driven by self-selected females who rationally enter the market less often than self-selected males as their rank-determining performance on a sports and current events trivia quiz is worse than the performance of self-selected males. In Experiment 2 we find no effect of self-selection on entry and no gender differences in entry rates or performance in the addition task. Our results point out that (i) the finding that overconfidence leads to excess entry is not robust to a population consisting of both genders; and (ii) the self-selection effect is sensitive to both gender and task that is used to determine the rank upon entry.

• Item Type: MPRA Paper
• Language: English
• Keywords: Experiment, Gender, Market Entry, Overconfidence, Real Effort, Replication, Robustness
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; C - Mathematical and Quantitative Methods > C9 - Design of Experiments; D - Microeconomics > D2 - Production and Organizations; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D47 - Market Design

References

Alicke, M. D. (1985). Global self-evaluation as determined by the desirability and controllability of trait adjectives. Journal of Personality and Social Psychology, 49, 1621.

Alpert, M. & Raiffa, H. (1982). A progress report on the training of probability assessors.

Andersen, S., Ertac, S., Gneezy, U., List, J. A. & Maximiano, S. (2013). Gender, competitiveness, and socialization at a young age: Evidence from a matrilineal and a patriarchal society. Review of Economics and Statistics, 95, 1438-1443.

Balafoutas, L. & Sutter, M. (2012). Affirmative action policies promote women and do not harm efficiency in the laboratory. Science, 335, 579-582.

Barber, B. M. & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly journal of Economics, 261-292.

Bénabou, R. & Tirole, J. (2002). Self-confidence and personal motivation. Quarterly journal of economics, 871-915.

Bénabou, R. & Tirole, J. (2003). Self-knowledge and self-regulation: An economic approach. The psychology of economic decisions, 1, 137-167.

Beyer, S. (1990). Gender differences in the accuracy of self-evaluations of performance. Journal of personality and social psychology, 59, 960.

Buehler, R., Griffin, D. & Ross, M. (1994). Exploring the" planning fallacy": Why people underestimate their task completion times. Journal of personality and social psychology, 67, 366.

Cadsby, C. B., Servátka, M. & Song, F. (2013). How competitive are female professionals? A tale of identity conflict. Journal of Economic Behavior & Organization, 92, 284-303.

Camerer, C. & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American economic review, 306-318.

Christensen-Szalanski, J. J. & Bushyhead, J. B. (1981). Physicians' use of probabilistic information in a real clinical setting. Journal of Experimental Psychology: Human perception and performance, 7, 928.

Christoffersen, S. & Sarkissian, S. (2002). Location overconfidence. McGill University.

Clayson, D. E. (2005). Performance overconfidence: Metacognitive effects or misplaced student expectations? Journal of Marketing Education, 27, 122-129.

Collins, S. M., James, D., Servátka, M. & Woods, D. (2017). Price-setting and attainment of equilibrium: Posted offers versus an administered price. Games and Economic Behavior, 106, 277-293.

Cooper, D. J. & Kagel, J. H. (2009). The role of context and team play in cross-game learning. Journal of the European Economic Association, 7, 1101-1139.

Daniel, K., Hirshleifer, D. & Subrahmanyam, A. (1998). Investor psychology and security market under‐and overreactions. the Journal of Finance, 53, 1839-1885.

Danková, K. (2015). Experiments on reciprocity, social comparison and overconfidence. Mimeo: University of Canterbury.

Deaves, R., Luders, E. & Luo, G. Y. (2009). An experimental test of the impact of overconfidence and gender on trading activity. Review of Finance, 13, 555-575.

Deck, C., Lee, J., Reyes, J. A. & Rosen, C. C. (2013). A failed attempt to explain within subject variation in risk taking behavior using domain specific risk attitudes. Journal of Economic Behavior & Organization, 87, 1-24.

Dunning, D., Meyerowitz, J. A. & Holzberg, A. D. (1989). Ambiguity and self-evaluation: The role of idiosyncratic trait definitions in self-serving assessments of ability. Journal of personality and social psychology, 57, 1082.

Ertac, S. & Szentes, B. The effect of information on gender differences in competitiveness: Experimental evidence. 2011. TÜSİAD-Koç University Economic Research Forum working paper series.

Fischbacher, U. (2007). Z-tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10, 171-178.

Flory, J. A., Leibbrandt, A. & List, J. A. (2014). Do competitive workplaces deter female workers? A large-scale natural field experiment on job entry decisions. The Review of Economic Studies, 82, 122-155.

Forbes, W. (2009). Behavioural finance, John Wiley & Sons.

Gervais, S. & Odean, T. (2001). Learning to be overconfident. Review of Financial studies, 14, 1-27.

Glaser, M., Langer, T. & Weber, M. (2005). Overconfidence of professionals and lay men: Individual differences within and between tasks?

Glaser, M., Langer, T. & Weber, M. (2007). On the trend recognition and forecasting ability of professional traders. Decision Analysis, 4, 176-193.

Gneezy, U., Leonard, K. L. & List, J. A. (2009). Gender differences in competition: Evidence from a matrilineal and a patriarchal society. Econometrica, 77, 1637-1664.

Gneezy, U., Niederle, M. & Rustichini, A. (2003). Performance in competitive environments: Gender differences. The Quarterly Journal of Economics, 118, 1049-1074.

Gneezy, U. & Rustichini, A. (2006). Executive versus teachers: Gender, competition and self-selection. Working Paper. University of Chicago.

Günther, C., Ekinci, N. A., Schwieren, C. & Strobel, M. (2010). Women can’t jump?—an experiment on competitive attitudes and stereotype threat. Journal of Economic Behavior & Organization, 75, 395-401.

Healy, A. & Pate, J. (2011). Can teams help to close the gender competition gap? The Economic Journal, 121, 1192-1204.

Healy, P. & Moore, D. (2007). Bayesian overconfidence. Hoelzl, E. & Rustichini, A. (2005). Overconfident: Do you put your money on it?*. The Economic Journal, 115, 305-318.

Kirchler, E. & Maciejovsky, B. (2002). Simultaneous over-and underconfidence: Evidence from experimental asset markets. Journal of Risk and Uncertainty, 25, 65-85.

Klayman, J., Soll, J. B., Gonzalez-Vallejo, C. & Barlas, S. (1999). Overconfidence: It depends on how, what, and whom you ask. Organizational behavior and human decision processes, 79, 216-247.

Kruger, J. (1999). Lake wobegon be gone! The" below-average effect" and the egocentric nature of comparative ability judgments. Journal of personality and social psychology, 77, 221.

Locke, P. R. & Mann, S. C. House money and overconfidence on the trading floor. AFA 2002 Atlanta Meetings, 2001.

Lundeberg, M. A., Fox, P. W. & Puncochar, J. (1994). Highly confident but wrong: Gender differences and similarities in confidence judgments. Journal of educational psychology, 86, 114.

Malmendier, U. & Tate, G. (2005). Ceo overconfidence and corporate investment. The journal of finance, 60, 2661-2700.

Messick, D. M., Bloom, S., Boldizar, J. P. & Samuelson, C. D. (1985). Why we are fairer than others. Journal of Experimental Social Psychology, 21, 480-500.

Moore, D. A. & Cain, D. M. (2007). Overconfidence and underconfidence: When and why people underestimate (and overestimate) the competition. Organizational Behavior and Human Decision Processes, 103, 197-213.

Müller, J. & Schwieren, C. (2012). Can personality explain what is underlying women’s unwillingness to compete? Journal of Economic Psychology, 33, 448-460.

Niederle, M., Segal, C. & Vesterlund, L. (2013). How costly is diversity? Affirmative action in light of gender differences in competitiveness. Management Science, 59, 1-16.

Niederle, M. & Vesterlund, L. (2007). Do women shy away from competition? Do men compete too much? The quarterly journal of economics, 122, 1067-1101.

Presson, P. K. & Benassi, V. A. (1996). Illusion of control: A meta-analytic review. Journal of Social Behavior and Personality, 11, 493.

Price, C. R. (2011). Do women shy away from competition? Do men compete too much?: A (failed) replication. Working Paper, University South Indiana.

Roll, R. (1986). The hubris hypothesis of corporate takeovers. Journal of business, 197-216.

Selten, R. & Güth, W. Equilibrium point selection in a class of market entry games. Games, Economic Dynamics, and Time Series Analysis, 1982. Springer, 101-116.

Simon, M. & Houghton, S. M. (2003). The relationship between overconfidence and the introduction of risky products: Evidence from a field study. Academy of Management Journal, 46, 139-149.

Soll, J. B. & Klayman, J. (2004). Overconfidence in interval estimates. Journal of Experimental Psychology: Learning, Memory, and Cognition, 30, 299.

Svenson, O. (1981). Are we all less risky and more skillful than our fellow drivers? Acta Psychologica, 47, 143-148.

Taylor, S. E. & Brown, J. D. (1988). Illusion and well-being: A social psychological perspective on mental health. Psychological bulletin, 103, 193.

Vandegrift, D. & Yavas, A. (2009). Men, women, and competition: An experimental test of behavior. Journal of Economic Behavior & Organization, 72, 554-570.

Weinberg, B. A. (2009). A model of overconfidence. Pacific Economic Review, 14, 502-515.

Windschitl, P. D. & Chambers, J. R. (2004). The dud-alternative effect in likelihood judgment. Journal of Experimental Psychology: Learning, Memory, and Cognition, 30, 198.

Wozniak, D., Harbaugh, W. T. & Mayr, U. (2014). The menstrual cycle and performance feedback alter gender differences in competitive choices. Journal of Labor Economics, 32, 161-198.