Words to Use with Care? CEO Dispositional Optimism vs Overconfidence

Abstract

CEO overconfidence and dispositional optimism are often used interchangeably. This paper addresses two key issues that result in this problem, (1) the conflation and confounding between CEO overconfidence and dispositional optimism; (2) the lack of consideration for the other parties’ individual traits. To expose the theoretical and empirical distinctions, we examine the interaction between supplier and customer, and its effects on supplier's relationship-specific investments. Theory indicates that both traits show a proclivity to overinvestments, but interestingly, results differ when accounting by the other parties’ optimism and overconfidence. Specifically, the customer CEOs optimism strengthens this relationship while overconfidence weakens it.

Keywords: Overconfidence, Dispositional optimism, Supplier's relationship-specific investments