Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278981 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 16283
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
overconfidence
memory
tournament
motivated beliefs
JEL: 
D82
D83
J33
L25
L81
M52
M54
Document Type: 
Working Paper

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