High-Stakes Overconfidence

Cognitive heuristics simplify decisions, even if they introduce biases. This can be an efficient tradeoff when the costs of bias are low, but may be problematic when the stakes are high. Study 1 (N = 118 contestants) examines the confidence of contestants on a game show, the Million Dollar Money Drop. The results show that, even in the presence of substantial incentives, decision makers are more confident than they are accurate. Study 2 (N = 1567 MBA students) analyzes course examinations and finds again that test-takers are more confident than accurate. Study 3 (N = 226 Amazon Mechanical Turk Workers) demonstrates that these results are robust to variation in payoff schemes. Study 4 tests this question experimentally by varying incentive level and looking at overprecision. Moreover, it includes a task for which incentives should indeed change performance; this would serve to demonstrate that the incentive levels are indeed motivational and could move effort, but not overprecision. These findings contradict the economic argument that rational agents may be biased when the stakes are low but that sufficient incentives motivate unbiased decisions. Instead, the findings attest to the durability of overconfidence in judgment, even when stakes are high.