Journal article
Optimism, overconfidence, and moral hazard
- Abstract:
- I revisit the standard moral-hazard model, in which an agent’s preference over contracts is rooted in costly effort choice. I characterise the behavioural content of the model in terms of empirically testable axioms, and show that the model’s parameters are identified. I propose general behavioural definitions of relative (over)confidence and optimism, and characterise these in terms of the parameters of the moral-hazard model. My formal results are rooted in a simple but powerful insight: that the moral-hazard model is closely related to the well-known ‘variational’ model of choice under uncertainty.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
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(Preview, Version of record, pdf, 1.1MB, Terms of use)
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- Publisher copy:
- 10.1086/733782
Authors
- Publisher:
- University of Chicago Press
- Journal:
- Journal of Political Economy Microeconomics More from this journal
- Volume:
- 3
- Issue:
- 4
- Pages:
- 741-762
- Publication date:
- 2025-09-08
- Acceptance date:
- 2024-07-31
- DOI:
- EISSN:
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1537-534X
- ISSN:
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0022-3808
- Language:
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English
- Keywords:
- Pubs id:
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2004347
- Local pid:
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pubs:2004347
- Deposit date:
-
2024-06-04
Terms of use
- Copyright holder:
- University of Chicago
- Copyright date:
- 2025
- Rights statement:
- © 2025 The University of Chicago. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License (CC BY-NC 4.0), which permits non-commercial reuse of the work with attribution.
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