Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business
JOURNAL OF POLITICAL ECONOMY, Vol. 104, No. 6, December 1996
This paper examines individual decision making when decisions reflect on people's ability to learn. We address this problem in the context of a manager making investment decisions on a project over time. We show that in an effort to appear as a fast learner, the manager will exaggerate his own information; but ultimately, he becomes too conservative, being unwilling to change his investments on the basis of new information. Our results arise purely from learning about competence rather than concavity or convexity of the rewards functions. We relate our results to the existing psychology literature concerning cognitive dissonance reduction.
JEL Classification: D83, G39
Date posted: November 11, 1996