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Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics
Overconfidence Due to a Self-reliance Dilemma
Gergely Hajdu () and Nikola Frollová ()
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Gergely Hajdu: Department of Economics, Vienna University of Economics and Business
Nikola Frollová: Department of Management, Prague University of Economics and Business
Abstract: Choosing between payment based on one’s own performance or others’ is inherent in most delegation decisions. We propose and test that such self-reliance dilemma could result in motivated reasoning about own and others’ performances. Participants in an experiment face this dilemma and learn about it either before or after reporting their beliefs. We find that learning about the dilemma decreases participants’ beliefs about their counterpart’s performance advantage (CPA) by an average of 17%. Furthermore, it causes an average overestimation of one’s own performance and increases the fraction of participants who falsely believe they outperformed their counterpart. Organizations should, therefore, carefully manage delegation decisions and implement measures to curb overconfidence.
Keywords: overconfidence, self-reliance, motivated reasoning
JEL-codes: D90; C91; D83 April 2024
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