Self-Confidence and the Timing of Entry

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serval:BIB_F6D8D5A9F27D
Type
Report: a report published by a school or other institution, usually numbered within a series.
Publication sub-type
Working paper: Working papers contain results presented by the author. Working papers aim to stimulate discussions between scientists with interested parties, they can also be the basis to publish articles in specialized journals
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Publications
Institution
Title
Self-Confidence and the Timing of Entry
Author(s)
Santos Pinto L., Pires T.
Institution details
Université de Lausanne - HEC - DEEP
Issued date
10/2008
Number
09.05
Genre
Cahiers de recherches économiques
Language
english
Number of pages
21
Abstract
This paper analyzes the impact of overconfidence on the timing of entry in markets, profits, and welfare. To do that the paper uses an endogenous timing model where (i) players have private information about costs and (ii) one player is overconfident and the other is rational. The paper shows that for moderate levels of self-confidence there is a unique cost-dependent equilibrium where the overconfident player has a higher ex-ante probability of entering the market before the rational player. In this equilibrium self-confidence reduces the profits of the rational player but can increase the profits of the overconfident player provided that cost asymmetries are small. Finally, we show that overconfidence reduces welfare, except when cost asymmetries are very small.
Create date
01/12/2008 21:48
Last modification date
20/08/2019 16:23
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