People use information about their ability to choose tasks. If more
challenging tasks provide more accurate information about ability,
people who care about and who are risk averse over their perception of
their ability will choose tasks that are not sufficiently challenging.
Moderate overestimation of ability and overestimation of the precision
of initial information leads people to choose tasks that raise expected
output (and utility); however, extreme overconfidence leads people to
undertake tasks that are excessively challenging. Consistent with our
results, psychologists find that moderate overconfidence is both
pervasive and advantageous.
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