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Positive self-image in tournaments

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Author Info
Santos-Pinto, Luís

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Abstract

This paper analyzes the implications of worker overestimation of productivity for firms in which incentives take the form of tournaments. Each worker overestimates his productivity but is aware of the bias in his opponent’s self-assessment. The manager of the firm, on the other hand, correctly assesses workers’ productivities and self-beliefs when setting tournament prizes. The paper shows that, under a variety of circumstances, firms make higher profits when workers have positive self-image than if workers do not. By contrast, workers’ welfare declines due to their own misguided choices.

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File URL: http://mpra.ub.uni-muenchen.de/3140/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3140.

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Date of creation: 10 Nov 2003
Date of revision: 27 Feb 2007
Handle: RePEc:pra:mprapa:3140

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Related research
Keywords: Self-Image; Tournaments; Behavioral Economics.;

Find related papers by JEL classification:
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October. [Downloadable!] (restricted)
    Other versions:
  2. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring. [Downloadable!] (restricted)
  3. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November. [Downloadable!] (restricted)
  4. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March. [Downloadable!] (restricted)
  5. Hanming Fang & Giuseppe Moscarini, 2004. "Morale Hazard," Yale School of Management Working Papers ysm386, Yale School of Management. [Downloadable!]
    Other versions:
  6. Munetomo Ando, 2004. "Overconfidence in Economic Contests," Econometric Society 2004 Far Eastern Meetings 708, Econometric Society. [Downloadable!]
  7. Leonidas Enrique de la Rosa, 2007. "Overconfidence and Moral Hazard," Economics Working Papers 2007-08, School of Economics and Management, University of Aarhus. [Downloadable!]
  8. Winston Koh, 1992. "A note on modelling tournaments," Journal of Economics, Springer, vol. 55(3), pages 297-308, October. [Downloadable!] (restricted)
  9. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July. [Downloadable!] (restricted)
    Other versions:
  10. Landier, Augustin & Thesmar, David, 2003. "Financial Contracting with Optimistic Entrepreneurs: Theory and Evidence," CEPR Discussion Papers 3971, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Colin Camerer & Dan Lovallo, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March. [Downloadable!] (restricted)
  12. Santos-Pinto, Luís & Park, Young-Joon, 2004. "Forecasts of relative performance in tournaments: evidence from the field," MPRA Paper 3144, University Library of Munich, Germany, revised 22 Mar 2007. [Downloadable!]
  13. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January. [Downloadable!] (restricted)
    Other versions:
  14. Hvide, Hans K., 2002. "Pragmatic beliefs and overconfidence," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 15-28, May. [Downloadable!] (restricted)
  15. Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2004. "The Impact of Experience on Risk Taking, Overconfidence, and Herding of Fund Managers: Complementary Survey Evidence," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-292, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Leonidas Enrique de la Rosa, 2007. "Overconfidence and Moral Hazard," Economics Working Papers 2007-08, School of Economics and Management, University of Aarhus. [Downloadable!]
  2. Sandra Ludwig & Julia Nafziger, 2007. "Do You Know That I Am Biased? An Experiment," Bonn Econ Discussion Papers bgse11_2007, University of Bonn, Germany. [Downloadable!]
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