ESSAYS ON THE MANAGERIAL IMPLICATIONS OF DIFFERING PRIORS

This dissertation studies managerial implications of the fact that people may openly differ in their beliefs. It consists of three essays.

The first essay is methodological in nature. It considers  issues that arise when we allow agents in an economic model to knowingly hold differing beliefs or, more precisely, differing priors.  It  motivates why this might sometimes be  optimal from a methodological point of view, argues that it is fully consistent with the economic paradigm, and counters some potential objections. It then discusses  epistemic  foundations for the Nash equilibrium, the  meaning of efficiency in this context, and alternative ways to set up models with differing priors. With this  methodological foundation in place, the next two essays really focus  on the managerial implications of differing priors.

The second essay studies the role of organizational beliefs and managerial vision in the behavior and performance of corporations. The paper defines vision operationally as a very strong belief by the manager about the right course of action for the firm.  The interaction between employees'  beliefs and the manager's vision  shapes decisions and determines employees' motivation and satisfaction. Through sorting, the manager's vision also influences organizational beliefs. Under weak conditions, a company's board should select a manager with stronger beliefs than its own. Spurious effects, however, may make vision look better than it really is. The analysis also  has implications for theories of corporate culture and strategy.

The third essay shows why rational agents  may attribute their own success more to skill and their failures more to bad luck than an outsider, why each agent in a group might  think he or she is the best, and why two agents' estimated contributions add up to more than 100 %. Central to the analysis is a simple and robust mechanism that  generates endogenous overconfidence in one's own actions. The intuition is that random errors plus systematic choices lead to systematic errors. The paper finally  considers organizational implications.