Confidence and Career Choices: An Experiment
Wissenschaftszentrum Berlin für Sozialforschung Discussion Paper SP II 2018–301
57 Pages Posted: 15 Jan 2018 Last revised: 28 Jan 2021
Date Written: January 7, 2021
Confidence in one’s own abilities is often seen as an important determinant of being successful. Empirical evidence about how such beliefs about one’s own abilities causally influence choices is, however, sparse. In this paper, we use a stylized laboratory experiment to investigate the causal effect of an increase in confidence on two important choices made by workers in the labor market: (i) choosing between jobs with a payment scheme that depends heavily on ability [high earnings risk] and those that pay a fixed wage [low earnings risk], and (ii) the subsequent choice of how much effort to exert within the job. We find that an exogenous increase in confidence leads to an increase in subjects’ propensity to choose payment schemes that depend heavily on ability. This is detrimental for low ability workers due to high baseline levels of confidence.
Keywords: Overconfidence, Experiment, Beliefs, Real-Effort, Grade Inflation
JEL Classification: C91, D03, M50, J24
Suggested Citation: Suggested Citation