Over-Confidence, Shame and Investments

Dessi, Roberta and Zhao, Xiaojian (2014) Over-Confidence, Shame and Investments. TSE Working Paper, n. 14-516, Toulouse

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Official URL: http://tse-fr.eu/pub/28397

Abstract

The available evidence from numerous studies suggests that overconfidence is a more important phenomenon in North America than in Japan. The pattern is reversed for shame, which appears to play a more important role among Japanese than North Americans. We develop a model that endogenizes these differences and examines their economic consequences. In addition, it yields novel implications for differences in overconfidence and behavior within countries. A crucial tradeoff arises in the model between the benefits of encouraging improvement on existing activities and the benefits of promoting initiative and investment in new activities. Overconfidence and high sensitivity to shame emerge as substitute mechanisms to induce efficient investment decisions, generating a "North American" equilibrium with overconfidence and low sensitivity to shame, and a "Japanese" equilibrium with high sensitivity to shame and no overconfidence. The analysis identifies the costs as well as bene fits of reliance on each mechanism, and welfare implications.

Item Type: Monograph (Working Paper)
Language: English
Date: August 2014
Place of Publication: Toulouse
Uncontrolled Keywords: Overconfidence, shame, investment, cultural differences, cross-sectional differences, memory, cultural transmission
JEL codes: D03 - Behavioral Economics; Underlying Principles
D83 - Search; Learning; Information and Knowledge; Communication; Belief
Z1 - Cultural Economics; Economic Sociology; Economic Anthropology
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 16 Mar 2015 14:49
Last Modified: 20 Nov 2018 11:19
OAI ID: oai:tse-fr.eu:28397
URI: http://publications.ut-capitole.fr/id/eprint/16550

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