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Department of Economics pres.

Social, Behavioral & Experimental Economics (SBEE): Persistent Overconfidence and Biased Memory: Evidence from Managers

Collin Raymond, Purdue University

economics economics
economics
Abstract:

A long-standing puzzle is whether and how overconfidence can persist in field settings characterized by repeated feedback. This paper studies managers who participate repeatedly in a high-powered tournament incentive system, learning relative performance each time. Using both reduced form and structural methods we find that: (i) managers make overconfident predictions about future performance; (ii) managers have overly-positive memories of past performance; (iii) the two phenomenon are linked at an individual level in a way consistent with models of motivated beliefs.

with David Huffman and Julia Shvet

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