The medical student

The Medical Student was published from 1888-1921 by the students of Boston University School of Medicine

Overconfidence in Labor Markets

This chapter reviews how worker overconfidence affects labor markets. Evidence from psychology and economics shows that in many situations, most people tend to overestimate their absolute skills, overplace themselves relative to others, and overestimate the precision of their knowledge. The chapter starts by reviewing evidence for overconfidence and for how overconfidence affects economic choices. Next, it reviews economic explanations for overconfidence. After that, it discusses research on the impact of worker overconfidence on labor markets where wages are determined by bargaining between workers and firms. Here, three key questions are addressed. First, how does worker overconfidence affect effort provision for a fixed compensation scheme? Second, how should firms design compensation schemes when workers are overconfident? In particular, will a compensation scheme offered to an overconfident worker have higher-or lower-powered incentives than that offered to a worker with accurate self-perception? Third, can worker overconfidence lead to a Pareto improvement? The chapter continues by reviewing research on the impact of worker overconfidence on labor markets where workers can move between firms and where neither firms nor workers have discretion over wage setting. The chapter concludes with a summary of its main findings and a discussion of avenues for future research

Performance Standards and Employee Effort: Evidence from Teacher Absences

The 2001 No Child Left Behind Act (NCLB) increased accountability pressure in U.S. public schools by threatening to impose sanctions on Title 1 schools that failed to make adequate yearly progress (AYP) in consecutive years. Difference-in-difference estimates of the effect of failing AYP in the first year of NCLB on teacher effort in the subsequent year suggest that, on average, teacher absences in North Carolina fell by about 10 percent, and the probability of being absent 15 or more times fell by about 30 percent. Reductions in teacher absences were driven by within-teacher increases in effort and were larger among more effective teachers