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Description: Why are people so often overconfident? We conduct experiments to test the hypothesis that people self-deceive into higher confidence in order to more effectively persuade or deceive others. After performing a cognitively challenging task, half of our subjects are informed that they can earn money if, during a short face-to-face interaction, they convince others of their superior performance. We find that the privately elicited beliefs of the group that was informed of the interaction exhibit significantly more overconfidence than the beliefs of the control group. Generating random variation in confidence with a noisy performance signal, we also show that higher confidence is causal in making subjects more persuasive in the interactions. Our findings put the phenomenon of overconfidence in a new light. Rather than merely being a cognitive deficiency or a source of affective benefits, overconfidence may represent an optimal response to an environment in which social influence and persuasion are often crucial.

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