Imposing Commitment to Rein in Overconfidence in Learning

Implications of Overconfidence on Information Investment

Marcelo Ariel Fernandez, Tatiana Mayskaya and Arina Nikandrova

Economics Working Paper Archive from The Johns Hopkins University,Department of Economics

Abstract: A rational principal delegates learning to an overconfident agent who overestimates the precision of the information he collects. The principal chooses between two contracts: commitment, in which the agent commits to the duration of learning in advance, and flexible, in which the agent decides when to stop learning in real time. When the agent is sufficiently overconfident, the principal optimally ties the agent's hands by offering him the commitment contract. When the principal can choose both the contract and the agent's level of overconfidence, selecting the rational agent is suboptimal when the cost of learning is sufficiently high.

Keywords: learning; delegation; overconfidence; Brownian motion; misspecified model (search for similar items in EconPapers)
JEL-codes: D83 D91 (search for similar items in EconPapers)
Date: 2017-09-19, Revised 2022-03-15
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Journal Article: Imposing commitment to rein in overconfidence in learning (2024)
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