Template-Type: ReDIF-Paper 1.0
Title: Confidence and Organizations
Author-Name: Andres Espitia
Author-Email: aespitia@uni-bonn.de
Classification-JEL: D82, D83, D91
Keywords: principal-agent, overconfidence, belief design

Abstract: Miscalibrated beliefs generally compromise the quality of workers' decisions. Why might a firm
prefer to hire an individual known to be overconfident? In this paper, I explore the role of such
biases when members of the organization disagree about the right course of action. I present a
model in which an agent uses his private information to make a choice on behalf of a principal.
In this setting, I consider what I call the belief design problem: how would the principal like the
agent to interpret his observations? I provide conditions under which the solution indicates a
preference for a well-calibrated, an underconfident, or an overconfident agent. A well-calibrated
agent is preferred if and only if his information does not affect the expected difference in the
players' preferred actions. Overconfidence is optimal when the principal seeks to adjust actions
beyond what a well-calibrated agent would do.

Note: 
Length: 34
Creation-Date: 2024-03
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp521
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_521