Persistent Overconfidence and Biased Memory: Evidence from Managers

David Huffman, Collin Raymond and Julia Shvets

American Economic Review, 2022, vol. 112, issue 10, 3141-75

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.

JEL-codes: D82 D83 J33 L25 L81 M52 M54 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aer.20190668 (application/pdf)
https://www.aeaweb.org/doi/10.1257/aer.20190668.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/aer.20190668.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:112:y:2022:i:10:p:3141-75

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/aer.20190668

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().