This paper explains why people value self-confidence, and how this concern shapes their informational strategies and intertemporal decisions. The theory has applications in areas as diverse as labour supply, savings and investment, or education and career decisions. People generally have imperfect knowledge about their abilities, which in most tasks are complementary to effort. Self-confidence thus enhances motivation, and this gives a time--inconsistent individual a strong incentive to build up the self-esteem of his future selves, so as to limit their procrastination. The benefits of confidence-maintenance must, however, be traded off against the risks of overconfidence. Moreover, rational inference implies that the individual cannot systematically fool himself. The model explains why people often choose to remain ignorant about their true abilities, or 'blind' to important signals from their work, personal or market environment; and why they sometimes deliberately impair their own performance or choose overambitious tasks in which they are sure to fail (self-handicapping). It also provides a formal account of (endogenously) selective memory or awareness, such as the tendency to remember one's successes more than one's failures. This result, in turn, helps explain why most people have overoptimistic assessments of their own abilities and accomplishments (self-serving beliefs). Another important result is that this 'psychological immune system' can lead to multiple intrapersonal equilibria in cognitive strategies, self confidence, and behaviour. Moreover, while 'positive thinking' and similar forms of self--deception can improve ex-ante welfare, they can also be self-defeating.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2580.
Roland Benabou & Jean Tirole, 1999.
"Self-Confidence: Intrapersonal Strategies,"
Working Papers
152, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
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Find related papers by JEL classification: A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General D60 - Microeconomics - - Welfare Economics - - - General D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
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Roland Babou & Jean Tirole, 1999.
"Self-Confidence And Social Interactions,"
Working Papers
151, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
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