Career concerns and Bayesian overconfidence of managers

Sadettin Çitçi and Eren Inci

International Journal of Industrial Organization, 2016, vol. 46, issue C, 137-159

Abstract: We show that managerial overconfidence can be a rational response to the economic and institutional environment, rather than a personal trait. A manager, whose contract may not be renewed upon poor performance relative to his peers, chooses risky projects in the firm. This may result in more than half of the managers rationally estimating their abilities to be better than average. Although there can be underconfident managers in equilibrium, it is never the case that more than half of them estimate their abilities to be below average in any equilibrium.

Keywords: Bayesian rationality; Better than average; Career concerns; Overconfidence; Underconfidence (search for similar items in EconPapers)
JEL-codes: D82 D83 G02 G30 M51 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:46:y:2016:i:c:p:137-159

DOI: 10.1016/j.ijindorg.2016.04.005

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