Overconfidence and Preferences for Competition |
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| Authors: | ERNESTO REUBEN PAOLA SAPIENZA LUIGI ZINGALES |
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| Affiliation: | 1. Correspondence: Paola Sapienza, Northwestern University, Kellogg School of Management, 2221 Campus Drive, Evanston, IL 60208-2001;2. e-mail: paola-sapienza@kellogg.northwestern.edu.;3. Ernesto Reuben is at New York University in Abu Dhabi and the Luxembourg Institute of Socio-Economic Research. Paola Sapienza is at Northwestern University, Kellogg School of Management. Luigi Zingales is at the University of Chicago, Booth School of Business. A working paper version of this paper was distributed under the title “Taste for competition and the gender gap among young business professionals.” This research was funded by the Templeton Foundation. Reuben also recognizes financial support by Tamkeen under the NYU Abu Dhabi Research Institute Award CG005. We thank the Editor Philip Bond and two anonymous referees for comments that greatly improved the paper. We are also thankful for the comments we received from participants at numerous seminars and conferences. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. All errors are 4. ours. |
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| Abstract: | We study when preferences for competition are a positive economic trait among high earners and the extent to which this trait can explain the gender gap in income among a master's degree in business administration (MBAs). Consistent with the experimental evidence, preferences for competition are a positive economic trait only for individuals who are not overconfident. Preferences for competition correlate with income only at graduation when bonuses are guaranteed and not a function of performance. Overconfident competition-loving MBAs observe lower compensation and income growth, and experience greater exit from high-reward industries and more frequent job interruptions. Preferences for competition do not explain the gender pay gap among MBAs. |
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