Individuals' output often depends not just on their ability and actions, but also on external factors or fundamentals, whose effect they cannot separately identify . At the same time, many individuals have incorrect beliefs about their own ability . Heidhues et al. (2018) characterise overconfident and underconfident individuals' equilibrium beliefs and learning process in these situations. They argue overconfident individuals will act sub-optimally because of how they learn. We carry out the first experimental test of their theory. Subjects take incorrectly marked tests, and we measure how they learn about the marker's accuracy over time. We use machine learning to identify heterogeneous effects. Overconfident subjects have lower beliefs about the fundamental, as Heidhues et al. predict, and thus would make sub-optimal decisions. But we find no evidence it is because of how they learn .
We test how individuals with incorrect beliefs about their ability learn about an external parameter (`fundamental') when they cannot separately identify the effects of their ability, actions, and the parameter on their output . Heidhues et al. (2018) argue that learning makes overconfident individuals worse off as their beliefs about the fundamental get less accurate, causing them to take worse actions. In our experiment, subjects take incorrectly-marked tests, and we measure how they learn about the marker's accuracy over time. Overconfident subjects put in less effort, and their beliefs about the marker's accuracy got worse, as they learnt. Beliefs about the proportion of correct answers marked as correct fell by 0.05 over the experiment. We find no effect in underconfident subjects .
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Individuals' output often depends not just on their ability and actions, but also on external factors or fundamentals, whose effect
We test how individuals with incorrect beliefs about their ability learn about an external parameter (`fundamental') when
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. At the same time, many individuals have incorrect beliefs about their own ability
the effects of their ability, actions, and the parameter on their output
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characterise overconfident and underconfident individuals' equilibrium beliefs and learning process in these situations. They argue overconfident individuals will act sub-optimally because of how they learn. We carry out the first experimental test of their theory. Subjects take incorrectly marked
argue that learning makes overconfident individuals worse off as their beliefs about the fundamental get less accurate, causing them to take worse actions. In our experiment, subjects take incorrectly-marked
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We use machine learning to identify heterogeneous effects. Overconfident subjects have lower
Overconfident subjects put in less effort, and their
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fundamental, as Heidhues et al. predict, and thus would make sub-optimal decisions. But we find no evidence it is because of how they learn
marker's accuracy got worse, as they learnt. Beliefs about the proportion of correct answers marked as correct fell by 0.05 over the experiment. We find no effect in underconfident subjects