We examine factors that may contribute to 'overconfidence' in relative ability on an intelligence test. We test experimentally for evidence of self-esteem concerns and instrumental strategic concerns. Errors in Bayesian updating are rare when the information does not involve own relative...

We conduct an experiment to test whether the size of a loss and the time in a losing position affect investors’ adaptation to the loss situation and, subsequently, whether this adaptation affects future investment decisions. As investors adapt to losses, their neutral reference point shifts...

How do people react to setbacks and successes? I introduce a new measure of challenge-seeking to determine the effect of winning and losing in a competition on the willingness to seek further challenges. Participants in a lab experiment compete in two-person tournaments and are then informed of...

This paper reports the results of an individual real effort laboratory experiment where subjects are paid for measured performance. Measured performance equals actual performance plus noise. We compare a stable environment where the noise is small with a volatile environment where the noise is...

This paper investigates the extent of the holdup underinvestment problem in a buyer-seller relationship in which the seller has private information about his alternative trading opportunities. Theory predicts that, compared with a situation in which outside options are publicly observed, the...

Theoretical analyses of (optimal) performance measures are typically performed within the realm of the linear agency model. This model implies that, for a given compensation scheme, the agent’s optimal effort is unrelated to the amount of noise in the performance measure. In contrast,...