We test whether heavy or binge drinkers are overly optimistic about probabilities of adverse consequences from these activities or are relatively accurate about these probabilities. Using data from a survey in eight cities, we evaluate the relationship between subjective beliefs and drinking. We...

We examine the impact of managerial optimism on the inclusion of performance-pricing provisions in syndicated loan contracts (PSD). Optimistic managers may view PSD as a relatively cheap form of financing given their upwardly biased expectations about the firm’s future cash flow. Indeed,...

Forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth. Using long-term forecasts of economic growth from the IMF/World Bank staff Debt Sustainability Analyses for a panel of countries, we show that the...

This paper is concerned with project level outcomes of 10 large transport projects spread over eight countries that had benefited from EU Cohesion and ISPA funding. These are analysed within a cost benefit analysis framework with comparisons being made between the ex ante and ex post cost...

This paper incorporates the well-documented managerial optimism bias into a standard portfolio delegation problem to study its impact on investment strategies and the optimal incentive contract offered by the investor to the manager. It is shown that the optimistic manager trades a larger...

Entrepreneur’s cognitive biases have emerged as one of the central themes in understanding the performance of entrepreneurial firms. Research has shown that entrepreneur’s overconfidence and optimism bias help firm creation, but also contribute to firm failure. Prior studies using cognitive...

This study reviews the 50-year history of travel demand forecasting models, concentrating on their accuracy and relevance for public decision-making. Only a few studies of model accuracy have been performed, but they find that the likely inaccuracy in the 20-year forecast of major road projects...

Optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk and uncertainty, such as expected utility theory, subjective expected utility, and prospect theory. We therefore propose an alternative model of risky and uncertain choice...

We develop a principal-agent model based on a sequential game played by a representative investor and a fund manager in an asymmetric information framework. The model shows that investors’ perceptions of the fund market play the key role in the fund’s fee-setting mechanism. The managers’...