We analyze the value placed by rational agents on self-confidence, and the strategies employed in its pursuit. Confidence in one'S abilities generally enhances motivation, making it a valuable asset for individuals with imperfect willpower. This demand for self-serving beliefs (which can also arise from hedonic or signaling motives) must be weighed against the risks of overconfidence. On the supply side, we develop a model of self-deception through endogenous memory that reconciles the motivated and rational features of human cognition. The resulting intrapersonal game of strategic communication typically leads to multiple equilibria. While "positive thinking" can improve welfare, it can also be self-defeating (and nonetheless pursued). Believe what is in the line of your needs, for only by such belief is the need fulfilled... Have faith that you can successfully make it, and your feet are nerved to its accomplishment [William James, Principles of Psychology]. I have done this, says my memory. I cannot have done that, says my pride, remaining inexorable. Finally-memory yields [Friedrich Nietzsche, Beyond Good and Evil]. I had during many years followed the Golden Rule, namely, that whenever a published fact, a new observation or thought came across me, which was opposed to my general results, to make a memorandum of it without fait and at once; for I had found by experience that such (contrary and thus unwelcome) facts and thoughts were far more apt to escape from memory than favorable ones [Charles Darwin in The Life of Charles Darwin, by Francis Darwin].
ASJC Scopus subject areas
- Economics and Econometrics