Imposing Commitment to Rein in Overconfidence in Learning

97 Pages Posted: 19 Sep 2017 Last revised: 17 Jun 2022

See all articles by Marcelo Ariel Fernandez

Marcelo Ariel Fernandez

Johns Hopkins University

Tatiana Mayskaya

National Research University Higher School of Economics - International College of Economics and Finance; National Research University Higher School of Economics - Faculty of Economics

Arina Nikandrova

City, University of London

Date Written: June 16, 2022

Abstract

A rational principal delegates learning to an overconfident agent who overestimates the precision of the information he collects. The principal chooses between two contracts: commitment, in which the agent commits to the duration of learning in advance, and flexible, in which the agent decides when to stop learning in real time. When the agent is sufficiently overconfident, the principal optimally ties the agent's hands by offering him the commitment contract. When the principal can choose both the contract and the agent's level of overconfidence, selecting the rational agent is suboptimal when the cost of learning is sufficiently high.

Keywords: learning, delegation, overconfidence, misspecified model, Brownian motion

JEL Classification: D83, D91

Suggested Citation

Fernandez, Marcelo Ariel and Mayskaya, Tatiana and Nikandrova, Arina, Imposing Commitment to Rein in Overconfidence in Learning (June 16, 2022). Available at SSRN: https://ssrn.com/abstract=3038356 or http://dx.doi.org/10.2139/ssrn.3038356

Marcelo Ariel Fernandez

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

HOME PAGE: http://https://www.marcelo-fernandez.com/

Tatiana Mayskaya (Contact Author)

National Research University Higher School of Economics - International College of Economics and Finance ( email )

Pokrovski Bulvar 11, Korpus Zh, Office 715
Moscow, 109028
Russia

National Research University Higher School of Economics - Faculty of Economics ( email )

Shabolovka 26
Moscow, 119049
Russia

Arina Nikandrova

City, University of London ( email )

London
United Kingdom
EC1V 0HB (Fax)

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