Title： The Effects of Optimism Bias in Teams

Speaker：Prof. Jun Yang, Business School of Acadia University

Time：10:00 a.m. June 26 2014 (Thursday)

Location：Room N421, South Building

Abstract:  This paper imports a behavioral perspective into a team context to study the effort coordination problem among agents. Specifically, we investigate how the presence of optimism bias impacts the severity of the free-rider problem and the compensation contracts offered to agents in equilibrium. Most notably, the results indicate that all agents become more reluctant to exert effort and the team welfare decreases when some of its agents are optimistic, suggesting that optimism aggravates the free-rider problem in teams. This finding is in sharp contrast to the effect of overconfidence as identified in the literature. It is advisable to pay the optimistic agents less than the rational agents. Encouragingly, optimistic agents can learn about their own bias in the long run, leaving their team without too much detriment of optimism.