Camerer & Lovallo 1999 (AER) — "reference-group neglect"; entrants over-enter when ranking depends on skill, lose money in most rounds

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.

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

Confidence: Verified.

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.

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).

Operationalized as: [[rule-surface-and-reframe-in-house-comparator]].