How to beat the average

How to beat the average Empirical evidence has shown that people systematically overrate own performance relatively to others. This paper investigates production with identical workers where each one believes to be more productive than other workers. In a simple efficiency wage model, we ask how these seemingly incompatible beliefs can be made compatible with one another. We suggest that to compensate for the subjectively perceived productivity gap, each worker chooses an effort level lower than that attributed to others. The latter is estimated as the lowest effort that allows to pass the firm's monitoring test. Since rational agents will not maintain expectations which turn out to be systematically wrong, we introduce a "consistency requirement for false beliefs". Accordingly, predictions based on the "wrong" model must agree with the observations of the "true" model. We show that even with consistency, less effort is supplied than in the full information setting. Hence, the wage-effort relationship gets less efficient from the firm's viewpoint. At a first sight, at the firm-level workers gain from holding false beliefs, while profits unambigously fall. At the aggregate market outcome, however, the firms' labor demand declines, total output falls, and the rate of unemployment rises, decreasing workers utility again. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Quality & Quantity Springer Journals

How to beat the average

Loading next page...
 
/lp/springer_journal/how-to-beat-the-average-7JakBdXFKp
Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Social Sciences; Methodology of the Social Sciences; Social Sciences, general
ISSN
0033-5177
eISSN
1573-7845
D.O.I.
10.1023/A:1004201429900
Publisher site
See Article on Publisher Site

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

Monthly Plan

  • Read unlimited articles
  • Personalized recommendations
  • No expiration
  • Print 20 pages per month
  • 20% off on PDF purchases
  • Organize your research
  • Get updates on your journals and topic searches

$49/month

Start Free Trial

14-day Free Trial

Best Deal — 39% off

Annual Plan

  • All the features of the Professional Plan, but for 39% off!
  • Billed annually
  • No expiration
  • For the normal price of 10 articles elsewhere, you get one full year of unlimited access to articles.

$588

$360/year

billed annually
Start Free Trial

14-day Free Trial