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Worker overconfidence: Field evidence and implications for employee turnover and firm profits

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  • Mitchell Hoffman
  • Stephen V. Burks

Abstract

Combining weekly productivity data with weekly productivity beliefs for a large sample of truckers over 2 years, we show that workers tend to systematically and persistently overpredict their productivity. If workers are overconfident about their own productivity at the current firm relative to their outside option, they should be less likely to quit. Empirically, all else equal, having higher productivity beliefs is associated with an employee being less likely to quit. To study the implications of overconfidence for worker welfare and firm profits, we estimate a structural learning model with biased beliefs that accounts for many key features of the data. While worker overconfidence moderately decreases worker welfare, it also substantially increases firm profits.

Suggested Citation

  • Mitchell Hoffman & Stephen V. Burks, 2020. "Worker overconfidence: Field evidence and implications for employee turnover and firm profits," Quantitative Economics, Econometric Society, vol. 11(1), pages 315-348, January.
    • Handle: RePEc:wly:quante:v:11:y:2020:i:1:p:315-348
    DOI: 10.3982/QE834
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    Cited by:

    1. Gizem Koşar & Cormac O'Dea, 2022. "Expectations Data in Structural Microeconomic Models," NBER Working Papers 30094, National Bureau of Economic Research, Inc.
    2. Bruhin, Adrian & Petros, Fidel & Santos-Pinto, Luís, 2023. "The role of self-confidence in teamwork: Experimental evidence," Discussion Papers, Research Unit: Market Behavior SP II 2023-206, WZB Berlin Social Science Center.
    3. Kiss, Andrea & Garlick, Robert & Orkin, Kate & Hensel, Lukas, 2023. "Jobseekers' Beliefs about Comparative Advantage and (Mis)Directed Search," IZA Discussion Papers 16522, Institute of Labor Economics (IZA).
    4. Xiaoshuai Fan & Qingye Wu & Ying‐Ju Chen & Christopher S. Tang, 2023. "The implications of pay transparency in the presence of over‐ and underconfident agents," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2304-2321, July.
    5. Sizhong Sun, 2023. "Firm heterogeneity, worker training and labor productivity: the role of endogenous self-selection," Journal of Productivity Analysis, Springer, vol. 59(2), pages 121-133, April.
    6. Sonnabend, Hendrik & Lackner, Mario, 2020. "Gender differences in overconfidence and decision making in high-stakes competitions: evidence from freediving contests," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224595, Verein für Socialpolitik / German Economic Association.
    7. Burks, Stephen V. & Kildegaard, Arne & Miller, Jason W. & Monaco, Kristen, 2023. "When Is High Turnover Cheaper? A Simple Model of Cost Tradeoffs in a Long‐Distance Truckload Motor Carrier, with Empirical Evidence and Policy Implications," IZA Discussion Papers 16477, Institute of Labor Economics (IZA).
    8. Xavier D'Haultfoeuille & Christophe Gaillac & Arnaud Maurel, 2021. "Rationalizing rational expectations: Characterizations and tests," Quantitative Economics, Econometric Society, vol. 12(3), pages 817-842, July.
    9. Ryan Oprea & Sevgi Yuksel, 2022. "Social Exchange of Motivated Beliefs," Journal of the European Economic Association, European Economic Association, vol. 20(2), pages 667-699.
    10. Kishishita, Daiki & Yamagishi, Atsushi & Matsumoto, Tomoko, 2023. "Overconfidence, income-ability gap, and preferences for income equality," European Journal of Political Economy, Elsevier, vol. 77(C).
    11. Spencer Bastani & Thomas Giebe & Oliver Gürtler, 2023. "Overconfidence and Gender Equality in the Labor Market," ECONtribute Discussion Papers Series 220, University of Bonn and University of Cologne, Germany.
    12. Katharina Dowling & Lucas Stich & Martin Spann, 2021. "An experimental analysis of overconfidence in tariff choice," Review of Managerial Science, Springer, vol. 15(8), pages 2275-2297, November.
    13. Botond Kőszegi & George Loewenstein & Takeshi Murooka, 2022. "Fragile Self-Esteem [Students’ Response to Academic Setback: “Growth Mindset” as a Buffer against Demotivation]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(4), pages 2026-2060.
    14. Takeshi Murooka & Yuichi Yamamoto, 2021. "Misspecified Bayesian Learning by Strategic Players: First-Order Misspecification and Higher-Order Misspecification," OSIPP Discussion Paper 21E008, Osaka School of International Public Policy, Osaka University.
    15. Kaufmann, Marc & Machado, Joël & Verheyden, Bertrand, 2021. "Why Do Migrants Stay Unexpectedly? Misperceptions and Implications for Integration," IZA Discussion Papers 14155, Institute of Labor Economics (IZA).
    16. Takeshi Murooka & Yuichi Yamamoto, 2021. "Multi-Player Bayesian Learning with Misspecified Models," OSIPP Discussion Paper 21E001, Osaka School of International Public Policy, Osaka University.
    17. Pohlan, Laura & Steffes, Susanne, 2022. "Performance feedback and job search behavior: Empirical evidence from linked employer-employee data," ZEW Discussion Papers 22-048, ZEW - Leibniz Centre for European Economic Research.
    18. Erin T. Bronchetti & Judd B. Kessler & Ellen B. Magenheim & Dmitry Taubinsky & Eric Zwick, 2023. "Is Attention Produced Optimally? Theory and Evidence From Experiments With Bandwidth Enhancements," Econometrica, Econometric Society, vol. 91(2), pages 669-707, March.

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