Experimental evidence suggests that people tend to be overconfident in the sense that they overestimate the accuracy of their private
information. In this paper, we show that risk-averse principals might prefer overconfident agents in various strategic interactions
because these agents help diversify the aggregate risk. This may help understanding why successful analysts and entrepreneurs tend to
be overconfident. In addition, a different interpretation of the model presents a novel evolutionary foundation for overconfidence, and
explains various stylized facts about this bias.
"Overconfidence and Diversification." American Economic Journal: Microeconomics,
Criteria for Decision-Making under Risk and Uncertainty
Asymmetric and Private Information; Mechanism Design