Overconfidence is a well-established behavioral phenomenon that involves an overestimation of own capabilities. We introduce a model, in which managers and agents exert effort in a joint production, after the manager decides on the allocation of the tasks. A rational manager tends to delegate...

Models of choice where agents see others as less sophisticated than themselves have significantly different, sometimes more accurate, predictions in games than does Nash equilibrium. When it comes to mechanism design, however, they turn out to have surprisingly similar implications. This paper...

This paper proposes "expected informativeness," an ex-ante counterpart of a likelihood ratio, in principal-agent models. The principal has an easy task and a difficult task to delegate. The difficult task requires high ability and high effort. It is the first-best outcome to assign tasks...

Distortions in memory impose important bounds on rationality but have been largely disregarded in economics. While it is possible to learn, it is more difficult, and sometimes impossible, to unlearn. This retention effect lowers individual utility directly or via reduced productivity, and adds...

We study a principal‐agent framework in which the agent forms beliefs about the principal's project based on a misspecified subjective model. She fits this model to the objective probability distribution to predict output under alternative actions. Misspecifications in the subjective model may...