EGO UTILITY, OVERCONFIDENCE, AND TASK CHOICE

• Published in: Journal of the European Economic Association Vol. 4; no. 4; pp. 673 - 707
• Main Author: Köszegi, Botond
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01-06-2006; MIT Press
• Subjects: Bayesian method; Decision making; Economic models; Economic utility; Ego; Expected utility; Materialism; Modeling; Motivation; Optimal strategies; Personality psychology; Self; Self image; Social behaviour; Social psychology; Utility theory
• ISSN: 1542-4766; 1542-4774
• DOI: 10.1162/JEEA.2006.4.4.673

This paper models behavior when a decision maker cares about and manages her self-image. In addition to having preferences over material outcomes, the agent derives "ego utility" from positive views about her ability to do well in a skill-sensitive, "ambitious," task. Although she uses B ayes' rule to update beliefs, she tends to become overconfident regarding which task is appropriate for her. If tasks are equally informative about ability, her task choice is also overconfident. If the ambitious task is more informative about ability, she might initially display underconfidence in behavior, and, if she is disappointed by her performance, later become too ambitious. People with ego utility prefer to acquire free information in smaller pieces. Applications to employee motivation and other economic settings are discussed.