Overconfidence and Gender Gaps in Career Outcomes: Insights from a Promotion-Signaling Model

Although gender differences in overconfidence have been extensively documented in empirical research, their consequences for labor market outcomes remain underexplored in the theoretical literature. This paper develops a promotion-signaling model with competitive incentives and endogenously determined wages to examine how men's relatively higher overconfidence contributes to gender differences in career advancement and earnings. Our theoretical results show that overconfident workers exert more effort, are promoted more often, and earn higher wages across hierarchical levels, despite having lower expected ability conditional on promotion. This increased effort also promotes human capital accumulation through learning-by-doing, which ultimately increases productivity. At the same time, overconfidence acts as a double-edged sword: while it facilitates favorable career outcomes through higher promotion probabilities and wages, it also imposes greater effort costs and can discourage peers, potentially undermining overall outcomes in certain contexts.