Confidence, Self-Selection and Bias in the Aggregate
The influence of behavioral biases on aggregate outcomes like prices and allocations depends in part on self-selection: whether rational people opt more strongly into aggregate interactions than biased individuals. We conduct a series of betting market, auction and committee experiments using 15 classic cognitive bias tasks. We document that some cognitive errors are strongly reduced through self-selection, while others are not affected at all. A large part of this variation is explained by the quality of people's meta-cognition. In some cognitive tasks, confidence and performance are strongly positively correlated, while for others this link is absent or even negative.
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Benjamin Enke & Thomas Graeber & Ryan Oprea, 2023. "Confidence, Self-Selection, and Bias in the Aggregate," American Economic Review, vol 113(7), pages 1933-1966.