The Positive Effects of Biased Self-Perceptions in Firms

By Simon Gervais, Itay Goldstein. 2007

144 citations recorded by the source corpus.

We study a firm in which the marginal productivity of agents' effort increases with the effort of others. We show that the presence of an agent who overestimates his marginal productivity may make all agents better off, including the biased agent himself. This Pareto improvement is obtained even when compensation contracts are set endogenously to maximize firm value. We show that the presence of a leader improves coordination, but self-perception biases can never be Pareto-improving when they affect the leader. Self-perception biases are also shown to affect job assignments within firms and the likelihood and value of mergers.

Subfields: Accounting, Economics and Econometrics, Safety Research

View Paper: https://www.semanticscholar.org/paper/9b35e9c73d44bea0dda50f74b017f6a029b7908c

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Citations in the corpus

Ecology, trade and states in pre-colonial Africa (2014, background): “For example, Kobayashi and Suehiro (2005) extend the model to allow for imperfect information available to all the team members to endogenize the emergence of leadership while Majumdar and Mukand (2007) analyze the leader’s ability to promote reforms, while Gervais and Goldstein (2007) introduce ove”
CEO Optimism and Incentive Compensation (2014, unknown): “Keiber (2005) considers a setting in which both the principal and the agent are overconfident, and Gervais and Goldstein (2007) show how agents who overestimate the marginal productivity of their effort can ameliorate free-rider and effort coordination problems.”
Leadership: What It Means, What It Does, and What We Want to Know About It (2011, background): “Bolton et al. build on previous work (Blanes i Vidal & Moeller 2007; Gervais & Goldstein 2007; Van den Steen 2004, 2005) by allowing the leader to be “resolute,” i.e., she overestimates the precision of her prior beliefs and is therefore slow to change her mind as more information becomes available.”
Groupthink: Collective Delusions in Organizations and Markets (2013, background): “58On the theoretical side, see, e.g. Rotemberg and Saloner (1993), Bénabou and Tirole (2003), Fang and Moscarini (2005), Van den Steen (2005), Gervais and Goldstein (2007) and Landier et al. (2009).”
Executive Overconfidence and the Slippery Slope to Financial Misreporting (2012, unknown): “Recent studies provide an explanation by offering examples of positive externalities of executive overconfidence that offset the noted negative consequences (e.g., Goel and Thakor, 2000; Gervais and Goldstein, 2007; Gervais et al., 2010).”
Leadership, Coordination, and Corporate Culture (2013, background): “See also, Goel and Thakor (2008), where overconfident managers win tournaments, or Blanes i Vidal and Möller (2007) and Gervais and Goldstein (2007), where overconfident managers better motivate followers. at C olum bia U niversity L ibraries on A pril 9, 2013 http://restud.oxfordjournals.org/ D ow…”