Overconfidence in a career-concerns setting

Arbeitspapier

We study the effects of overconfidence in a two-period investment-decision agency setting. Under common priors, agent risk aversion implies inefficiently low first-period investment. In our model, principal and agent disagree about the profitability of the investment decision conditional on a given public signal. An overconfident agent believes that the principal will update her beliefs upwards more often than not. As a consequence, the agent overestimates the benefits of learning from first-period investment. This implies that agent overconfidence mitigates the agency problems arising from the agent's career concerns, even though an overconfident agent bears more project and reputational risk in equilibrium.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2405

Classification and Topics

• Classification: Wirtschaft ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Expectations; Speculations ; Economics of Contract: Theory
• Subject: Overconfidence ; heterogenous beliefs ; career concerns ; Agency Theory ; Investition ; Karriereplanung ; Erwartungstheorie ; Lernprozess ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): De La Rosa, Leonidas Enrique
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/26450
• Last update: 10.03.2025, 11:44 AM CET