Worker overconfidence: Field evidence and implications for employee turnover and firm profits

Abstract

Combining weekly productivity data with weekly productivity beliefs for a large sample of truckers over 2 years, we show that workers tend to systematically and persistently overpredict their productivity. If workers are overconfident about their own productivity at the current firm relative to their outside option, they should be less likely to quit. Empirically, all else equal, having higher productivity beliefs is associated with an employee being less likely to quit. To study the implications of overconfidence for worker welfare and firm profits, we estimate a structural learning model with biased beliefs that accounts for many key features of the data. While worker overconfidence moderately decreases worker welfare, it also substantially increases firm profits.

Is Attention Produced Optimally? Theory and Evidence from Experiments with Bandwidth Enhancements

“…13 Deviations due to E1 or E2 imply systematic misperceptions. Systematic biases have been documented in a variety of domains of decision making, including other types of costly effort decisions (e.g., DellaVigna and Pope, 2017;Hoffman and Burks, 2020). These explanations are also equivalent in the simplified representation (2), as both lead to biased beliefs about the aggregate cost functions K j .…”

Why Do Migrants Stay Unexpectedly? Misperceptions and Implications for Integration

“…Krueger and Mueller (2016) show that unemployment duration has a very limited impact on workers'reservation wages in the US. Excess of optimism also applies to individuals holding a job, as Ho¤man and Burks (2020) show that truck drivers over-estimate the number of miles they will run over the week, and they fail to update these estimations through the course of the week. This excess of optimism about labour market prospects also appears to apply to immigrants (Borjas and Bratsberg (1996)).…”

Why Do Migrants Stay Unexpectedly? Misperceptions and Implications for Integration

“…Krueger and Mueller (2016) show that unemployment duration has a very limited impact on workers'reservation wages in the US. Excess of optimism also applies to individuals holding a job, as Ho¤man and Burks (2020) show that truck drivers over-estimate the number of miles they will run over the week, and they fail to update these estimations through the course of the week. This excess of optimism about labour market prospects also appears to apply to immigrants (Borjas and Bratsberg (1996)).…”

“… 8 In contrast, non-migrants living in developed countries seem systematically optimistic(Spinnewijn (2015),Krueger and Mueller (2016),Ho¤man and Burks (2020)). …”