Resource title

Overconfidence in a career-concerns setting

Resource image

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Resource description

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.

Resource author

Leonidas Enrique De La Rosa

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26450

Resource license

Adapt according to the presented license agreement and reference the original author.