Confidence Management in Tournaments

34 Pages Posted: 15 May 2020

See all articles by Hanming Fang

Hanming Fang

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Shanglyu Deng

University of Maryland - Department of Economics

Qiang Fu

National University of Singapore (NUS)

Zenan Wu

School of Economics, Peking Univeristy

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2020

Abstract

An incumbent employee competes against a new hire for bonus or promotion. The incumbent's ability is commonly known, while that of the new hire is private information.The incumbent is subject to a perceptional bias: His prior about the new hire's type differs from the true underlying distribution. He can be either ex ante overconfident or underconfident. We first explore whether a firm that aims to maximize aggregate effort would benefit or suffer from the bias. It is shown that debiasing may not be productive in incentivizing efforts. We then study the optimal information disclosure policy. The firm is allowed to ex ante commit to whether an informative signal-which allows the incumbent to infer the new hire's type-will be disclosed publicly. We fully characterize the conditions under which transparency or opacity will prevail. We further take a Bayesian persuasion approach to optimally design the firm's evaluation and feedback structure. We also consider an alternative context in which the manager is concerned about the expected winner's effort. We demonstrate that the insights obtained from the baseline setting remain intact. Our results shed light on the extensive discussion of confidence management in firms and the debate about organizational transparency.

Suggested Citation

Fang, Hanming and Deng, Shanglyu and Fu, Qiang and Wu, Zenan, Confidence Management in Tournaments (May 10, 2020). ShanghaiTech SEM Working Paper No. 2020-006, Available at SSRN: https://ssrn.com/abstract=3599721 or http://dx.doi.org/10.2139/ssrn.3599721

Hanming Fang (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shanglyu Deng

University of Maryland - Department of Economics ( email )

United States

Qiang Fu

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Zenan Wu

School of Economics, Peking Univeristy ( email )

School of Economics, Peking Univeristy
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Beijing, Beijing 100871
China
+86-10-6275-6051 (Phone)

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