FV-18 Underconfidence: Why Companies Hire Insecure Overachievers
Research Project
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01.10.2012
- 30.09.2013
Over- and underconfidence is the perceived misinterpretation of the own abilities. We investigate the effects of this misinterpretation on optimal incentive contracts in a moral hazard setting. We show that the agent chooses his effort level based on both, the difficulty of the assigned task and his self-assessment. We are especially interested in the agent who underestimates his abilities as we find that he chooses an effort level higher than necessary and that this unfolds an advantageous situation for the principal. Due to this duality of underconfidence but overprovision of effort, we call this type the 'Insecure Overachiever' while the type who overestimates his abilities and thus chooses an effort level lower than necessary we call the 'Hot Nozzle'. From our model we want to further show that for any specific task difficulty the assignment of one of three types of agents, the 'Insecure Overachiever', the 'Hot Nozzle' or one who well estimates his abilities, is efficient.
