The bright side of managerial over-optimism

• Main Authors: HILARY, Gilles, HSU, Charles, SEGAL, Benjamin, WANG, Rencheng
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2016
• Subjects: Over-optimism; Managerial effort; Firm performance; Accounting
• Online Access: https://ink.library.smu.edu.sg/soa_research/1816
• Institution: Singapore Management University

Human estimation and inference are subject to systematic biases such as overconfidence and over-optimism. In contrast to prior research that has identified multiple negative consequences of these biases, we focus on positive effects. We empirically examine a setting in which over-optimism a) is a related but different bias from overconfidence, b) emerges dynamically in a rational economic framework, and c) generates higher managerial effort. Importantly, this additional effort improves firm profitability and market value.