Joy leads to Overconfidence, and a Simple Remedy
Overconfidence has been identified as a source of suboptimal decision making in many real- life domains, and it often has far-reaching consequences. Here, we demonstrate a causal mechanism that leads to overconfidence and show a simple, effective remedy for it in an incentive-compatible experimental study. We show that joy induces overconfidence if the reason for joy (an unexpected gift) is unrelated to the judgment task and if participants were not made specifically aware of our mood manipulation. In contrast, we observed well- calibrated judgments among participants in a control group who were in their resting mood. Furthermore, we found well-calibrated judgments among participants who received the joyful mood induction together with questions that forced them to reflect on their current mood, its cause, and the (ir)relevance of its cause to our judgment tasks. Our findings suggest that being aware of one’s positive mood and the reason for that mood can be an effective short- term remedy for overconfidence.
|Keywords||joy, judgement, mood, overconfidence, emotion|
|JEL||Laboratory, Individual Behavior (jel C91), Behavioral Economics; Underlying Principles (jel D03)|
|Publisher||Erasmus Research Institute of Management|
|Series||ERIM Report Series Research in Management|
Koellinger, Ph.D, & Treffers, T. (2012). Joy leads to Overconfidence, and a Simple Remedy (No. ERS-2012-001-STR). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/30805