This project examined how competitive strategic interactions contribute to overconfidence. Using a controlled experiment, it identified several mechanisms through which competition can sustain overconfidence, including asymmetric belief updating and the influence of exaggerated claims about ability.
Overconfidence can shape strategic decisions and competitive behaviour, yet the environments in which it emerges and persists are not fully understood. This project investigated whether competitive strategic interactions foster overconfidence and examined the underlying psychological mechanisms.
In a controlled laboratory experiment, participants were assigned either to a strategic environment in which they had an incentive to overstate their ability to deter competitors and avoid competition or to a non-strategic environment in which these incentives were absent. Their confidence in their own ability was subsequently measured.
The findings show that overconfidence persisted in the strategic environment but disappeared when the strategic incentives were removed. The study identified three mechanisms contributing to this pattern. First, participants who won without facing competition updated their confidence as though they had prevailed in an actual contest. Second, participants who did not compete tended not to revise their confidence, creating an asymmetry in belief updating. Third, exaggerated claims about ability influenced recipients’ beliefs and encouraged them to update their own confidence more positively.
Overall, the project provides evidence on how strategic incentives and social interactions can sustain overconfidence. It also offers insights into mechanisms that may contribute to the Dunning–Kruger effect and to gender differences in confidence.
