{"id":1095,"slug":"camerer-lovallo-1999-overconfidence-reference-group-neglect","title":"Camerer & Lovallo 1999 (AER) — \"reference-group neglect\"; entrants over-enter when ranking depends on skill, lose money in most rounds","kind":"reference","scope":"business","status":"current","audiences":["kevin","candid-team"],"topics":["psychology-aversion","entrepreneur-cognition"],"reference_body":"**Claim:** Camerer and Lovallo (1999) used an N-player coordination game to isolate **reference-group neglect**: when ranking depended on skill rather than chance, market entry was higher, and **self-selected entrants entered even more aggressively, losing money in most rounds**. Prospective entrants attend to their own competence but discount that the *other* entrants are also self-selected on competence.\n\n**Source:** Camerer, C., & Lovallo, D. (1999). \"Overconfidence and Excess Entry: An Experimental Approach.\" *American Economic Review* 89(1): 306–318. https://www.aeaweb.org/articles?id=10.1257%2Faer.89.1.306\n\n**Confidence:** Verified.\n\n**For Candid:** This is the mechanism behind the \"my nephew can build the website\" pattern. The GC attends to his nephew's (or his admin's, or his own) competence in absolute terms — and discounts the fact that everyone who tries to build a contractor website is similarly self-selected on optimism about their own competence. The base-rate-of-execution-failure dimension is invisible from inside the decision frame.\n\n**Combined with:** [[cooper-woo-dunkelberg-1988-entrepreneur-overconfidence-81pct-33pct]] (the magnitude of the effect) and [[busenitz-barney-1997-entrepreneur-vs-manager-overconfidence]] (entrepreneurs more overconfident than managers).\n\n**Operationalized as:** [[rule-surface-and-reframe-in-house-comparator]].","rationale_body":null,"metadata":null,"links":{"outgoing":[{"slug":"research-brief-risk-aversion-post-failure-may-2026","title":"Research brief: risk aversion, loss aversion, and post-failure decision patterns in GC and trades-business decision-makers (May 2026)","kind":"reference","scope":"business","link_type":"relates-to"}],"incoming":[{"slug":"overconfidence-in-house-comparator-pattern-for-gc-pitches","title":"The \"my nephew can build it\" pattern — loss-aversion on the invoice + overconfidence on in-house execution as mechanistically linked","kind":"reference","scope":"business","link_type":"depends-on"},{"slug":"rule-surface-and-reframe-in-house-comparator","title":"R4 — Surface and reframe the in-house comparator; the implicit competitor is \"my cousin / my admin\"; reframe it as a bet with its own probability of failure","kind":"rule","scope":"business","link_type":"depends-on"}]},"created_at":"2026-05-25T13:13:30.981Z","updated_at":"2026-05-25T13:13:30.981Z"}