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Estimating the Relationship between Skill and Overconfidence

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journal contribution
posted on 04.08.2022, 02:01 authored by Jan FeldJan Feld, J Sauermann, A de Grip
The Dunning–Kruger effect states that low performers vastly overestimate their performance while high performers more accurately assess their performance. Researchers usually interpret this empirical pattern as evidence that the low skilled are vastly overconfident while the high skilled are more accurate in assessing their skill. However, measurement error alone can lead to a negative relationship between performance and overestimation, even if skill and overconfidence are unrelated. To clarify the role of measurement error, we restate the Dunning–Kruger effect in terms of skill and overconfidence. We show that we can correct for bias caused by measurement error with an instrumental variable approach that uses a second performance as instrument. We then estimate the Dunning–Kruger effect in the context of the exam grade predictions of economics students, using their grade point average as an instrument for their exam grade. Our results show that the unskilled are more overconfident than the skilled. However, as we predict in our methodological discussion, this relationship is significantly weaker than ordinary least squares estimates suggest.

History

Preferred citation

Feld, J., Sauermann, J. & de Grip, A. (2017). Estimating the Relationship between Skill and Overconfidence. Journal of Behavioral and Experimental Economics, 68(10611), 18-24. https://doi.org/10.1016/j.socec.2017.03.002

Journal title

Journal of Behavioral and Experimental Economics

Volume

68

Issue

10611

Publication date

01/06/2017

Pagination

18-24

Publisher

Elsevier BV

Publication status

Published

Contribution type

Article

Online publication date

16/03/2017

ISSN

2214-8043

eISSN

2214-8051

Language

en