Unrealistic Expectations and Misguided Learning ∗

  title={Unrealistic Expectations and Misguided Learning ∗},
  author={Paul Heidhues},
We explore the learning process and behavior of an individual with unrealistically high expectations about ability (“overconfidence”) when outcomes also depend on an external fundamental that affects the optimal action. Moving beyond existing results in the literature, we show that the agent’s belief regarding the fundamental converges under weak conditions. Furthermore, we identify a broad class of situations in which “learning” about the fundamental is self-defeating: it leads the individual… CONTINUE READING