Persistent Overconfidence and Biased Memory: Evidence from Managers

David B. Huffman (), Collin Raymond () and Julia Shvets ()
Additional contact information
David B. Huffman: University of Pittsburgh
Collin Raymond: Purdue University
Julia Shvets: University of Cambridge

No 16283, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: A long-standing puzzle is how overconfidence can persist in 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 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 phenomena are linked at an individual level. Our results are consistent with models of motivated beliefs in which individuals are motivated to distort memories of feedback and preserve unrealistic expectations.

Keywords: tournament; memory; overconfidence; motivated beliefs (search for similar items in EconPapers)
JEL-codes: D82 D83 J33 L25 L81 M52 M54 (search for similar items in EconPapers)
Pages: 146 pages
Date: 2023-07
New Economics Papers: this item is included in nep-exp, nep-hrm, nep-lma and nep-neu
References: View references in EconPapers View complete reference list from CitEc
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Published - published in: American Economic Review, 2022, 112 (10), 3141–3175

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