Optimal Team Size and Overconfidence

Optimal Team Size and Overconfidence Group Decis Negot https://doi.org/10.1007/s10726-018-9575-9 Optimal Team Size and Overconfidence 1 2 Hendrik Hakenes · Svetlana Katolnik © Springer Science+Business Media B.V., part of Springer Nature 2018 Abstract In a team formation model with endogenous team size, we show that over- confidence may dominate rationality by increasing agents’ individual payoffs in teams. If team members are overconfident in their own ability, effort levels increase and the free rider problem is partially resolved. Because each member believes himself to be more skilled than the other members, agents prefer larger-sized teams only if complementarities are sufficiently strong. From the perspective of individual welfare, overconfidence partially undermines the efficient formation of teams. Although team members can benefit from their overconfidence only if complementarities exist, team formation can even be advantageous if members’ inputs are substitutes as it prevents agents from overinvesting in effort. We consider different extensions, including asym- metric agents, repeated interactions and the roles of monitoring and budget breaking as possible remedies to free riding. We thank Associate Editor Ayshwarya Ganesan and three anonymous reviewers for their valuable suggestions. We also thank Brice Corgnet, David Knoke, Matthias Kräkel, Jens Robert Schöndube, Steffen Seemann, Stefan Wielenberg and the participants at the Social http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Group Decision and Negotiation Springer Journals

Optimal Team Size and Overconfidence

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Publisher
Springer Netherlands
Copyright
Copyright © 2018 by Springer Science+Business Media B.V., part of Springer Nature
Subject
Business and Management; Operations Research/Decision Theory; Social Sciences, general
ISSN
0926-2644
eISSN
1572-9907
D.O.I.
10.1007/s10726-018-9575-9
Publisher site
See Article on Publisher Site

Abstract

Group Decis Negot https://doi.org/10.1007/s10726-018-9575-9 Optimal Team Size and Overconfidence 1 2 Hendrik Hakenes · Svetlana Katolnik © Springer Science+Business Media B.V., part of Springer Nature 2018 Abstract In a team formation model with endogenous team size, we show that over- confidence may dominate rationality by increasing agents’ individual payoffs in teams. If team members are overconfident in their own ability, effort levels increase and the free rider problem is partially resolved. Because each member believes himself to be more skilled than the other members, agents prefer larger-sized teams only if complementarities are sufficiently strong. From the perspective of individual welfare, overconfidence partially undermines the efficient formation of teams. Although team members can benefit from their overconfidence only if complementarities exist, team formation can even be advantageous if members’ inputs are substitutes as it prevents agents from overinvesting in effort. We consider different extensions, including asym- metric agents, repeated interactions and the roles of monitoring and budget breaking as possible remedies to free riding. We thank Associate Editor Ayshwarya Ganesan and three anonymous reviewers for their valuable suggestions. We also thank Brice Corgnet, David Knoke, Matthias Kräkel, Jens Robert Schöndube, Steffen Seemann, Stefan Wielenberg and the participants at the Social

Journal

Group Decision and NegotiationSpringer Journals

Published: May 31, 2018

References

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