The Development of Overconfidence: The Effects of Shallow Learning on Overconfidence

Across two studies we investigated the development of confidence and overconfidence in a debtor education course, a mandatory personal bankruptcy class. In study 1, using a nationally representative sample of Americans (n=25,281), those who had recently filed bankruptcy (n=818) performed worse on a financial literacy test yet possessed the highest levels of self-confidence in their financial expertise, compared to others (n=24,463). In study 2 we randomly assigned (n=400) participants to either complete a simulated debtor education course or not. We measured overconfidence in two ways, overestimation (excessive confidence in judgments), and overplacement (ranking oneself relative to others). Before the course participants overestimated and overplaced. Although they learned from the course, their confidence rose at faster rate than actual knowledge, resulting in exacerbated overestimation. The class, however, resulted in lower levels of overplacement. We ruled out that overplacement, but not overestimation, was driven by effects of merely repeating questions multiple times. The effect was especially pronounced in those that started off as top performers. In sum, people approach debtor education overestimating their judgments, and that debtor education results in a spike in overestimation.