Dessi, Roberta and Zhao, Xiaojian (2014) Over-Confidence, Shame and Investments. TSE Working Paper, n. 14-516, Toulouse
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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) |
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Language: | English |
Date: | August 2014 |
Place of Publication: | Toulouse |
Uncontrolled Keywords: | Overconfidence, shame, investment, cultural differences, cross-sectional differences, memory, cultural transmission |
JEL Classification: | 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: | 18 Apr 2024 11:51 |
OAI Identifier: | oai:tse-fr.eu:28397 |
URI: | https://publications.ut-capitole.fr/id/eprint/16550 |