On the Positive Effects of Overconfident Self-Perception in Teams

In this paper, we study the individual payoff effects of over confident self-perception in teams. In particular, we demonstrate that the welfare of an overconfident agent who works in a team with a rational agent or in a team with an overconfident agent can be higher than the welfare of the members of a team of two rational agents. This result holds irrespective of the assumption about the agents’ awareness of their colleague’s bias. Moreover, we show that an overconfident agent is always better off when he is unaware of a potential bias of his colleague. Thus, our results provide a potential rationale for the widespread dissemination of overconfidence.