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We use a series of experiments to understand whether and how people’s beliefs about their own abilities are biased relative to the Bayesian benchmark and how these beliefs then affect behavior. We find that subjects systematically and substantially overweight positive feedback relative to negative (asymmetry) and also update too little overall (conservatism). These biases are substantially less pronounced in an ego-free control experiment. Updating does retain enough of the structure of Bayes’ rule to let us model it coherently in an optimizing framework, in which, interestingly, asymmetry and conservatism emerge as complementary biases. We also find that exogenous changes in beliefs affect subjects’ decisions to enter into a competition and do so similarly for more and less biased subjects, suggesting that people cannot “undo” their biases when the time comes to decide. This paper was accepted by Axel Ockenfels, behavioral economics and decision analysis. Funding: Financial support from the National Science Foundation (NSF), Harvard University, and Wesleyan University is gratefully acknowledged. P. Niehaus received financial support from an NSF Graduate Research Fellowship. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2021.4294 .

Pre-College human capital investment occurs within a competitive environment and depends on market incentives created by Affirmative Action (AA) in college admissions. These policies affect mechanisms for rank-order allocation of college seats, and alter the relative competition between blacks and whites. We present a theory of AA in university admissions, showing how the effects of AA on human capital investment differ by student ability and demographic group. We then conduct a field experiment designed to mimic important aspects of competitive investment prior to the college market. We pay students based on relative performance on a mathematics exam in order to test the incentive effects of AA, and track study efforts on an online mathematics website. Consistent with theory, AA increases average human capital investment and exam performance for the majority of disadvantaged students targeted by the policy, by mitigating so-called "discouragement effects." The experimental evidence suggests that AA can promote greater equality of market outcomes and narrow achievement gaps at the same time.

Typically, laboratory experiments suffer from homogeneous subject pools and self-selection biases. The usefulness of survey data is limited by measurement error and by the questionability of their behavioral relevance. Here we present a method integrating interactive experiments and representative surveys thereby overcoming crucial weaknesses of both approaches. One of the major advantages of our approach is that it allows for the integration of experiments, which require interaction among the participants, with a survey of non-interacting respondents in a smooth and inexpensive way. We illustrate the power of our approach with the analysis of trust and trustworthiness in Germany by combining representative survey data with representative behavioral data from a social dilemma experiment. We identify which survey questions intended to elicit people�s trust correlate well with behaviorally exhibited trust in the experiment. People above the age of 65, highly skilled workers and people living in bigger households exhibit less trusting behavior. Foreign citizens, Catholics and people favoring the Social Democratic Party or the Christian Democratic Party exhibit more trust. People above the age of 65 and those in good health behave more trustworthy or more altruistically, respectively. People below the age of 35, the unemployed and people who say they are in favor of none of the political parties behave less trustworthy or less altruistically, respectively.