Overcoming Overconfidence: Teamwork and Self-Control

This paper analyzes interactions between agents who are overconfident regarding their own future self-control relative to others. The paper considers the problem of incentivizing several such agents, and compares two methods: assigning work individually to each agent or jointly to pairs of agents. If the agents are homogenous in their preferences and beliefs, then the joint assignment method dominates individual assignments. In the case of heterogenous agents, the effects of the joint assignment are twofold: teamwork mitigates the efficiency loss from overconfidence, but introduces inefficiency by disincentivising the more patient members of the team. The results in the paper suggest that team-based incentives are more effective when employees are relatively overconfident and when teams are formed based on similarity in present-bias and beliefs.