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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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| Title: | | Overconfidence in a career-concerns setting  |
| Authors: | | De La Rosa, Leonidas Enrique |
| Issue Date: | | 2008 |
| Series/Report no.: | | CESifo working paper 2405 |
| Abstract: | | 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. |
| Subjects: | | Overconfidence heterogenous beliefs career concerns |
| JEL: | | D83 D84 D86 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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