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Career concerns and Bayesian overconfidence of managers

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  • Citci, Sadettin Haluk
  • Inci, Eren

Abstract

We show that managerial overconfidence can be a rational response to the economic and institutional environment, rather than a personal trait. A manager, whose contract may not be renewed upon poor performance relative to his peers, chooses risky projects in the firm. This may result in more than half of the managers rationally estimating their abilities to be better than average. Although there can be underconfident managers in equilibrium, it is never the case that more than half of them estimate their abilities to be below average in any equilibrium.

Suggested Citation

  • Citci, Sadettin Haluk & Inci, Eren, 2016. "Career concerns and Bayesian overconfidence of managers," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 137-159.
    • Handle: RePEc:eee:indorg:v:46:y:2016:i:c:p:137-159
    DOI: 10.1016/j.ijindorg.2016.04.005
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    References listed on IDEAS

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    Cited by:

    1. Giorgio Barba Navaretti & Davide Castellani & Fabio Pieri, 2022. "CEO age, shareholder monitoring, and the organic growth of European firms," Small Business Economics, Springer, vol. 59(1), pages 361-382, June.

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    More about this item

    Keywords

    Bayesian rationality; Better than average; Career concerns; Overconfidence; Underconfidence;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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