Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2004:1: Unrealistic Optimism about Exogenous Events: An Experimental Test

Astri Muren ()
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Astri Muren: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: An experiment is designed to test if individuals show (unrealistic) optimism when determining their subjective probabilities about exogenous circumstances. Subjects in the control group make an informed guess about a number, under a payment scheme that rewards close guesses. In the treatment group, subjects' payments depend on the actual number as well as on the closeness of the guess, and they are thus given an incentive to guess optimistically. The data suggests that there is an optimistic bias.

Keywords: optimism; unrealistic optimism; wishful thinking; wish fulfilment.

JEL-codes: C91; D81; D84

20 pages, March 22, 2004

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