This paper experimentally tests the predictions of a principal-agent
model in which the agent has biased beliefs about his ability. Overconfident workers are found to earn lower wages than underconfident ones because they overestimate their expected payoff, and
principals adjust their offers accordingly. Moreover, the profit-maximizing contract distorts effort by varying incentives according to self-confidence, although only the most successful principals
use this strategy. These findings have implications for the labor
market; in particular, self-confidence is often correlated with gender, implying that principals would prefer to hire men over women
simply because they are more overconfident.
"Contracts for Agents with Biased Beliefs: Some Theory and an Experiment."
American Economic Journal: Microeconomics,
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief
Economics of Contract: Theory