The Bright Side of Managerial Over-Optimism
Hong Kong University of Science & Technology
INSEAD - Accounting & Control Area
June 27, 2013
INSEAD Working Paper No. 2013/82/AC
Human inference and estimation is subject to systematic biases. In particular, there is a long literature showing that overconfidence due to cognitive biases can lead to sub-optimal decisions. We depart from this research by showing empirically that a) over-optimism is a related but different bias, b) it can emerge dynamically in a rational framework rather than because of cognitive biases, and importantly, c) it can improve firm's welfare, more specifically, firms' profitability and market value.
Number of Pages in PDF File: 53
Keywords: over-optimism, firm performanceworking papers series
Date posted: June 29, 2013
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