On the Characteristics of Evolutionarily Stable Self-confidence Bias

Abstract

We investigate the characteristics of evolutionarily stable self-confidence bias that is non-Bayesian belief of a single decision maker. It is known that whenever a decision maker is risk averse, he has the self-confidence bias for his own ability of his self-reproduction. We show that the size of the bias is invariant in affine transformations in the utility function, which indicates that the bias has a similar property to expected utility hypothesis. Moreover, introducing fixed costs into self-reproduction process, we investigate the effects of time horizontal perspectives on the bias. We find that the size of the bias of a decision maker with CRRA utility function tends to increase in the short run. In contrast, the fixed cost for self-reproduction is irrelevant with the size of the bias for another type decision maker with CARA utility function.