Overconfidence, Incentives and Digit Ratio

Abstract

This paper contributes to a better understanding of the biological underpinnings of overconfidence by analyzing performance predictions in the Cognitive Reflection Test with and without monetary incentives. In line with the existing literature we find that the participants are too optimistic about their performance on average; incentives lead to higher performance; and males score higher than females on this particular task. The novelty of this paper is an analysis of the relation between participants' performance prediction accuracy and their second to fourth digit ratio. It has been reported that the digit ratio is a negatively correlated bio-marker of prenatal testosterone exposure. In the un-incentivized treatment, we find that males with low digit ratios, on average, are significantly more overconfident about their performance. In the incentivized treatment, however, we observe that males with low digit ratios, on average, are less overconfident about their performance. These effects are not observed in females. We discuss how these findings fit into the literature on testosterone and decision making and how they might help to explain seemingly opposing evidence.