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Imposing Commitment to Rein in Overconfidence in Learning
[Implications of Overconfidence on Information Investment]

Author

Listed:
  • Fernandez, Marcelo Ariel
  • Mayskaya, Tatiana
  • Nikandrova, Arina

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.

Suggested Citation

  • Fernandez, Marcelo Ariel & Mayskaya, Tatiana & Nikandrova, Arina, 2017. "Imposing Commitment to Rein in Overconfidence in Learning [Implications of Overconfidence on Information Investment]," Economics Working Paper Archive 66890, The Johns Hopkins University,Department of Economics, revised 15 Mar 2022.
    • Handle: RePEc:jhu:papers:66890
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    File URL: http://jhir.library.jhu.edu/handle/1774.2/66890
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    More about this item

    Keywords

    learning; delegation; overconfidence; Brownian motion; misspecified model;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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