OSIPP Discussion Paper : DP-2009-E-001

Vision and Flexibility
January 5, 2009
Junichiro Ishida
Osaka School of International Public Policy (OSIPP)【Key words】Vision, Flexibility, Intrapersonal conflict, Confirmationbias, Willpower, Self-confidence.
【Abstract】An effective leader must have a clear vision and a strong will tostand by it, even in turbulent times. At the same time, though, it is also
equally important to be open-minded and flexible enough to respondobjectively to new information without being prejudiced by priorinformation. This paper illustrates how these seemingly contradictory
qualifications are related and determined in a model of intrapersonal
conflicts. We consider a decision maker who is capable of deceiving herself
and manipulating information in some particular way to construct a rosy
view of the world. There is a cost of doing so, however, because a distorted
belief leads to a distorted action which is in general less efficient. This
tradeoff creates a tension within herself and constrains the extent of
information manipulation, thereby allowing us to identify the determinantsof vision and flexibility. Among other things, we show that vision andflexibility are substitutes, and their respective levels depend crucially on
attributes such as self-confidence level and fragility as well as the strength ofwillpower.

Correspondence to: Junichiro Ishida, Osaka School of International Public
Policy, Osaka University, 1-31 Machikaneyama, Toyonaka,Osaka 560-0043,
Japan. e-mail address: jishida@osipp.osaka-u.ac.jp.

Vision and FlexibilityJunichiro Ishida
OSIPP, Osaka University
January 5, 2009

Abstract
An effective leader must have a clear vision and a strong will to stand by it, even in
turbulent times. At the same time, though, it is also equally important to be open-minded
and flexible enough to respond objectively to new information without being prejudiced
by prior information. This paper illustrates how these seemingly contradictory qualifications are related and determined in a model of intrapersonal conflicts. We consider adecision maker who is capable of deceiving herself and manipulating information in someparticular way to construct a rosy view of the world. There is a cost of doing so, however,
because a distorted belief leads to a distorted action which is in general less efficient.
This tradeoff creates a tension within herself and constrains the extent of information
manipulation, thereby allowing us to identify the determinants of vision and flexibility.
Among other things, we show that vision and flexibility are substitutes, and their respective levels depend crucially on attributes such as self-confidence level and fragility as wellas the strength of willpower.

JEL Classification Codes: D03, D99.
Key Words: Vision, Flexibility, Intrapersonal conflict, Confirmation bias, Willpower, Selfconfidence.


Correspondence to: Junichiro Ishida, Osaka School of International Public Policy, Osaka University,
1-31 Machikaneyama, Toyonaka, Osaka 560-0043, Japan.
Tel: +81-6-6850-5634.
E-mail address:
jishida@osipp.osaka-u.ac.jp.

“Wise men change their minds, fools never.”– from Zhouyi (“The Book of Changes”)“Not to amend a fault after you commit it, that is a true fault.”– from Analects of Confucius

1 Introduction
Leadership is an extremely abstract and complex notion which cannot be easily summarized
by a few characteristics. Although it is perhaps true that no one characteristic makes a good
leader all by itself, it is also true that there are some characteristics that appear to be more
important than others. One of such characteristics might be vision – the ability to correctly
foresee the future and let her followers know about it by taking a clear stance. Led by aleader with a strong and clear vision who can take a stance before things unfold themselves,the organization can better identify tasks needed to be done before it becomes too late.
When a leader is indecisive and fails to take a stance soon enough, on the other hand, theorganization often loses its way, consequently ending up with mediocre outcomes.
There is little doubt that having a clear vision and a strong will to stand by it, even in
turbulent times, is an important qualification of effective leaders. At the same time, though,there seems to be much more to leadership than simply taking a stance early on and persevering afterwards. In a dynamic context where things gradually unfold themselves, leaders
must be open-minded enough to respond rationally and objectively to new information without being prejudiced by any prior beliefs. We call this characteristic flexibility, which is taken
as another key component of effective leadership. For instance, a leader may become obsessive about her initial stance after a sequence of “lucky” draws; or, on a flip side, she may
become stubborn and adhere to the initial stance when all the signs that subsequently become available indicate otherwise. Along with vision, flexibility is presumably another rare
characteristic, as it is best exemplified by an old Chinese proverb “wise men change their1minds, fools never.”1
Besides the fact that vision and flexibility are both rare to come by, the problem compounds even more because there seems to be only a thin line between these two notions.
How can a person possess vision and flexibility, which at a glance seem to contradict witheach other, at the same time? The goal of this paper is to address this issue, aiming to explore
into the workings behind vision and flexibility. To this end, we construct a two-period model
where a decision maker must make decisions sequentially in an uncertain environment. In
each period, she can observe a free signal which partially reflects the state of nature: forclarity, we refer to the signal observed in the first (second) period as the first (second) signal. The observed signal is either informative or noisy depending on some factors beyond
her control, and when it is informative, its accuracy depends on her own ability. Based on
the available information, she then makes an inference about the realized state and takes
an appropriate action. The problem is that the decision maker does not know whether any
given signal is informative or not beyond its objective probability (which we refer to as theobjective informativeness).
The fact that the informativeness of the signal depends possibly on some exogenous factors provides some leeways for the decision maker. While a rational decision maker forms
a belief based on its objective informativeness, we deviate from this conventional paradigm
by allowing her to deceive herself and believe whatever she wants to believe regarding theinformativeness of any observed signal. More precisely, we consider a situation where, uponobserving a signal, the decision maker subjectively assesses its informativeness to serve her
self-interests: that is, she may believe that the observed signal is informative and reliable,
more than its objective value, if the observed signal is favorable to her while she downplays
the informativeness of the signal if it is not favorable. This information manipulation is notcostless, however, because a distorted belief would lead to a distorted action which is in general less efficient.2 This tradeoff creates a tension within herself and constrains the extent
1
To “change minds,” one must be keen enough to find an error in own judgements and at the same timecourageous enough to admit it. The proverb implies that it is indeed difficult to achieve both of them.
2
A case in point is an instance of workers in a hazardous job, as depicted in Akerlof and Dickens (1982). To
escape from the fear of injury, they have an incentive to believe that the job is actually safe, but in this state ofself-deception, they also often fail to wear required safety equipments – an apparently inefficient action.

2

of information manipulation. The subjective informativeness is determined as an optimal
response to this tradeoff.
An important question to ask at this juncture is then what information is actually “favorable” to the decision maker. Would she have any reason to deceive herself into believing thatany given signal is more or less informative than its objective estimate? The answer is yes,
if she cares about her self-images in a dynamic context like this. To see why and when she
prefers to bend the truth, note that the signals observed by a low-ability decision maker tend
to be less reliable, and she is hence more prone to observing inconsistent signals. Conversely
speaking, observing inconsistent signals is a sign of incapability and consequently undermines her self-confidence while observing consistent signals does the opposite. When selfconfidence is a valuable asset, therefore, this quest for better self-images gives the decision
maker an incentive to distort her view of the world: to preserve or boost her self-confidence,
she tends to overvalue consistent signals and undervalue inconsistent ones, to the extent that
it is not warranted objectively.
We attempt to capture this process by constructing a model of intrapersonal conflicts
between the objective self and the subjective self who differ in their objectives and cognitive capabilities. The objective self represents a rational side of the decision maker who isforward-looking and processes information objectively, while the subjective self represents a
more primitive and instinctive side who is myopic and, with imperfect knowledge of herself,cares about her self-images (ego preferences). This setup contains two sources of cognitivebias. First, the subjective self possesses ego preferences, and the objective self must compromise with the subjective self to satisfy her ego by biasing the view of the world. Second, thedifference in time horizon between the two selves amounts to time-inconsistent objectives,
which gives rise to a self-control problem and the need to regulate future selves. With these
two sources at work, this simple setting yields three types of behavioral bias, which we referto as obsession, stubbornness and indecisiveness for expositional purposes. We summarize
our main findings as follows:
1. Consistent information is exaggerated (obsession).

3

2. Inconsistent information is discounted (stubbornness).
3. Early information is discounted (indecisiveness).
The first two biases concern what happens in the second period where the decision makerhas accumulated information. The driving force of these biases is the subjective self’s quest
for better self-images. As stated above, if the second signal is consistent with the first one andinformative, chances are that she has made the the right observation. She then exaggerates
the informativeness of the second signal but, as a consequence of self-deception, ends up withan extreme position. On the other hand, inconsistent signals are a bad news for the decision
maker because this may indicate the lack of ability on her part. To reduce dissonance, shethen downplays the importance of the second signal by disregarding it as uninformative.
These two biases indicate that she is prejudiced by the first signal, one way or the other:in either case, the decision maker lacks flexibility as she fails to respond objectively to new
information.
In contrast, the last bias, termed as indecisiveness, concerns what happens in the first
period. The underlying logic leading to this last bias is to be separated from the first two,as it now stems from a self-control problem due to time-inconsistent objectives. To see how
this bias arises, notice that while the decision maker’s information processing in the second
period is biased, its magnitude is heavily dependent on the informativeness of the first signal.
The magnitude is larger if she relies strongly on the first signal and takes a clear stance: for
instance, if the first signal is regarded as a complete noise containing no relevant information, the second signal provides no information about her ability type whatsoever, and there
arises no need to justify herself. For a decision maker who is hampered by the self-control
problem, discounting the informativeness of the first signal and remaining rather ambiguous
are therefore a way to regulate her future self. In so doing, however, she fails to articulate her
vision and take a clear stance before things unfold themselves, which we take as representing
the lack of vision.
The present setup allows us to identify several important factors that affect the way thedecision maker processes information over time and hence critical determinants of vision and4flexibility. First, a key factor in this entire process is the objective self’s dominance over the
subjective self. We say that the decision maker possesses strong willpower to regulate herself(or, more precisely, the subjective self) when the objective self has better control over the
subjective self. The lack of willpower, or the lack of control over the subjective self, is thesource of all behavioral biases in our model. A decision maker with weak willpower must
compromise more and consequently end up with a more biased view of the world. All sortsof biases disappear if the objective self has perfect control over the subjective self, whichallows the decision maker to rationally and objectively process information.
Another important factor is the decision maker’s self-confidence in her own ability, which
consists of two aspects: the level (the mean) and the fragility (the variance). The selfconfidence fragility is about how secure the decision maker feels about herself and measured
by the prior variance of the ability type, as perceived by the subjective self. The effect of theself-confidence fragility is complementary to the effect of willpower and works in the same
direction. If the decision maker is perfectly sure about her own ability, whatever she observes
does not change her assessment of herself, and the incentive to preserve self-confidence disappears no matter how severe the self-control problem is. As she becomes less secure about
herself, the need to preserve self-confidence intensifies, leading to all sorts of biased behavior.
In contrast, the effect of the self-confidence level, measured by the prior expectation of theability type, is more complicated compared to the other two factors. In general, a decision
maker with more self-confidence exhibits a lager bias in period 2 in both directions (bothobsession and stubbornness) and hence is less flexible. This is because those with high selfconfidence have more trust in the first signal, and the cost of biasing the interpretation of thesecond signal is relatively low,3 indicating that high self-confidence per se does not necessarily
leads to better and objective judgments. In contrast, the effect of the self-confidence level on
vision is less certain, as it could go either way. The logic is now partially reversed because thefirst signal is more reliable for those with high self-confidence and it is relatively more costly
for them to bias its interpretation. There is a countervailing effect, however, since the second3
To be more precise, this is because we consider a situation where the prediction ability is tested more in thefirst period. We explore more on this point later.

5period bias is larger for those with high self-confidence and the self-control problem is hence
severer, given the same level of willpower and self-confidence fragility. The overall effectis determined by this tradeoff but we argue that the first effect is more likely to dominate
the second. In light of this, we claim that high self-confidence makes a decision maker lessflexible, while it tends to make her more visionary.
The paper proceeds as follows. In the remainder of this section, we briefly discuss related
literatures. Section 2 outlines the basic model of subjective information evaluation. Section
3 provides the main results of the paper, with special attention paid to the effects of selfconfidence and willpower. Section 4 extends the basic model to show that the main results
are reasonably robust to some alterations. Finally, section 5 makes some concluding remarks.

Related literature
The paper spans over several distinct areas, and there are accordingly several strands ofrelated literature. First, both obsession and stubbornness are a manifestation of what is called
confirmation bias or, more generally, self-serving bias in the psychology literature.4 While
this has been well recognized in psychology, the importance of the self-serving nature of ourbelief system has also gained some recognition among economists,5 and several attempts are
made to capture this seemingly robust human nature.6 One of the attempts to model belief
distortions as a result of optimized behaviors is provided by Benabou and Tirole (2002, 2006,2007) and Benabou (2008a, 2008b). In these papers, they consider cases where an agent
can manipulate her own memory with some cost (e.g., forget bad news), thereby explicitly
looking into the process of biased belief formation.7 The basic tenet of our model largely
4

A self-serving bias refers to a human tendency to make internal attributions for success and external attribution for failure. The study on this issue has yielded a voluminous literature; see, for instance, Zuckerman(1979).
5
See, for instance, Babcock and Loewenstein (1997).
6
Formal analyses which incorporate confirmation bias and explore its consequences include Rabin and Schrag(1999) and Compte and Postlewaite (2004). The approach of this paper is different, as we derive it as an
optimized behavior of divided selves, instead of assuming it and exploring its consequences.
7
Several recent works also derive overconfidence, a type of self-serving bias, without explicitly assuming biased
information processing. Van den Steen (2004) argues that facing a choice of actions, people are more likely tochoose an action of which they overestimate the probability of success, and hence tend to be overoptimistic about
the current action that they choose. Santos-Pinto and Sobel (2005) consider a case where different individuals
hold different opinions about how skills combine to determines an ability level. In that setting, positive self-image
arises because they work more on a skill that is critical to their production function. Also, see Köszegi (2006) for

6falls into this category in that the entire logic is centered around endogenous and self-serving
belief distortions.
Although the current paper shares certain aspects with the line of works by Benabou
and Tirole, there are also some distinctions, aside from the fact that we focus on a totallydifferent issue. One important distinction lies in the fundamental mechanism which gives
rise to belief distortions, which inherently calls for a different modeling approach. It is wellrecognized in psychology that the sources of self-serving bias can be fairly diverse, and theliterature has accordingly identified several different “tricks” to sustain favorable views ofoneself. One of such tricks is that people tend to recall favorable experiences more readily
and forget unfavorable ones, which is precisely the approach taken by Benabou and Tirole.8
This paper focuses on yet another trick, i.e., a tendency to bias interpretations of evidenceor events in a self-serving manner. According to the literature, people manage to hold an
overoptimistic view of themselves because they discover flaws in evidence that conflicts with
their self-interests but rely excessively on evidence that portrays them in a good light: for
instance, several studies show that people tend to be more critical of the validity of tests on
which they failed (Wyer and Frey, 1983; Pyszczynski et al, 1985). Both of the tricks, alongwith some others, are generally regarded as important sources of self-serving bias; we choose
the current approach simply because it better serves our purposes.
Whereas both forms of inflexibility are deeply rooted in self-serving bias, the lack of visionin our model stems from a type of self-control problem due to time-inconsistent objectives. In
this sense, the paper is related to Carrillo and Mariotti (2000) and Benabou and Tirole (2002,
2004), among many others, who explore various aspects of self-regulation for individuals
with time-inconsistent preferences. In the present model, the self-control problem arises dueto the difference in time horizon between the two selves, where the myopic subjective self
gets in the way to obstruct the objective self to make a fully rational decision. The lack ofvision surfaces because taking an ambiguous stance early on is a way to reduce any concern
for protecting self-images and hence to regulate the future subjective self.
how a rational agent comes to hold an overoptimistic view of herself.
8
For instance, Crary (1966) shows that people boost self-esteem by not remembering failures.

7

Besides these so-called “behavioral” aspects, the main thrust of the paper is the dynamic
nature of information acquisition. Works along this line include Prendergast and Stole (1996)
and Li (2007) who consider dynamic aspects of reputation concerns in signaling models. This
paper is especially related to Prendergast and Stole (1996) who consider a situation wherean agent signals his ability to acquire information and examine how that signaling incentive
changes over the course of his career. They show that the agent exaggerates information
when young and tends to become more conservative as he gets older. An important aspectof their model is that changing behavior from previous periods is costly because that signals
the lack of ability on his part. Our model shares this aspect, which is the driving force of
one side of inflexibility termed as stubbornness. Aside from this, however, there are several
notable differences. First, we consider a totally different setup, which allows us to focus
on the flip side of inflexibility, i.e., exaggeration of favorable information which we refer toas obsession.9 Second, while Prendergast and Stole (1996) only consider static incentives(maximization of the current payoff), we explicitly consider dynamic incentives to regulate
the future self, which results in the discounting of early information.
Finally, several papers explicitly focus on the notion of vision. To name a few, Rotemberg
and Saloner (2000) model vision as a bias which makes the manager favor one project over
the other.10 Van den Steen (2005) also formalizes the notion of vision and shows that aleader with strong beliefs would attract employees with similar beliefs. This sorting effectimproves coordination within the firm, suggesting a channel through which strong vision canaffect the firm’s performance. In this paper, we focus on a different aspect of vision, definedas the ability to effectively utilize early information before things unfold themselves.11
9

In their model, the state space is extended on the real line and hence has no “extreme” points. In thisspecification, there is no way to exaggerate information in our sense.
10
Similarly, Rotemberg and Saloner (1994) argue that a firm could be better off by committing to a specificbusiness strategy.
11
In a different vein, Ishida (2008) discusses how reputation concerns force a decision maker to become indecisive in that she adheres excessively to the status quo

8

2 The model
Our optimization problem rests on the tradeoff between biased beliefs and biased actions,which stems from our inherent desire for coherence and consistency as suggested by theories
of cognitive dissonance. The basic premises of the present model follow Akerlof and Dickens(1982): (i) people have preferences not only over states of the world, but also over theirbeliefs about the state of the world; (ii) they also have some control over the beliefs; (iii)the beliefs once chosen persist over time. The last premise is particularly important, as it
links distorted beliefs with distorted actions. Because of this link, a tradeoff arises whichconstrains the extent of information manipulation.

2.1 Setup
Consider a two-period model where a risk-neutral decision maker (DM) engages in somelong-term project. In each period, DM observes a signal, evaluates it and takes an action
based on the evaluation. The action chosen in each period yields a payoff which is realized
and received at the end of period 2. The value of the project depends on the action taken
in each period and the (time-invariant) state of nature  2 f0; 1g. The state of nature is notdirectly observable, and its prior distribution is given by

probf = 0g = probf = 1g = 0:5:
That is, each state occurs equally likely ex ante.
In this environment, DM’s job is to correctly predict the state and choose an appropriate
course of action accordingly. More precisely, let at 2 [0; 1℄ denote the action chosen in periodt = 1; 2. Given some realized state , the value of the project (for period t) is given by v (at )where v0 (a) =a2 and v1 (a) = (1a)2 . This specification implies that the actions are

ex ante symmetric in every respect. Given the action a and some belief  := probf = 1 javailable informationg, the expected value of the project is computed as

R(a; ) = (1 a)2 (1 )a2 :9(1)

The first-order condition implies that the optimal action is a = , i.e., to match with the belief
about the realized state.

2.2 Signals
At the beginning of each period, DM has a chance to observe a signal, which possibly contains
some information about the state of nature. The signal is either informative or noisy, and the(objective) probability that any given signal is informative is ~ 2 (0; 1). When the signal isnoisy, it contains no information about the realized state, so thatprobfst =  j the signal is noisy; g = 0:5; t = 1; 2:
When it is informative, on the other hand, the signal coveys some information about therealized state although its accuracy differs across periods. DM’s judgement ability is tested
more in period 1, and hence the accuracy depends more on her ability type, denoted by

 2 [0; 1℄:

probfs1 =  j the signal is informative; g = 1 +2  :The situation unfolds itself and becomes more predictable as time passes by, so that an informative signal in period 2 perfectly reflects the realized state:probfs2 =  j the signal is informative; g = 1:
It is perhaps worth emphasizing that the second signal contains information not just about
the realized state but also about the ability type, because DM with low ability is more likely
to observe inconsistent signals.

2.3 Information processing and the intrapersonal conflict
Although DM knows nothing more than the fact that any given signal is informative withprobability ~ , we here consider a situation where she can deceive herself and subjectively
assign the informativeness to each observed signal in a self-serving manner. Let t 2 [0; 1℄
denote the subjective informativeness of the observed signal, i.e., the subjective assessmentof the probability that the signal observed in period t is informative. In each period, upon10

observing a signal st , DM chooses t to serve her self-interests. There is a cost associatedwith this information manipulation, however, because a distorted belief would persist andsubsequently result in an inefficient action. The subjective informativeness is determined bytaking into account this tradeoff.
While there are potentially many ways to capture this aspect, we model DM as a multilayered self with divided interests between the objective self, the subjective self, and theactor.12 The objective and subjective selves are jointly responsible for processing information and constructing DM’s own view of the world, which is represented by the (subjective)
information sett:

1 := (s1 ; 1 ) and 2 := (s1 ; s2 ; 1 ; 2 ):Given the information set t , the actor then maps it into an action to maximize the expectedvalue of the project. Formally, we divide each period into two stages and suppose that DM
goes through the following process:Stage 1 (the information-processing stage). Upon observing st , the objective and subjective
selves assign t to it so as to maximize the overall payoff t (to be explained next).
Stage 2 (the action stage). Given the information set

t , the actor implements the optimal

action.
The focus of attention is on the intrapersonal conflict in the first stage while the presenceof the actor is artificially introduced to make a link between a belief and an action. The driving force of the intrapersonal conflict is the misalignment of incentives between the objective
and subjective selves, which we describe below.
The objective self: The objective self represents a rational, though manipulable, side of DM
who is forward-looking and processes information in an objective manner as conventionallyassumed. The objective self correctly understands that any given signal is informative withprobability ~ and uses this objective informativeness to evaluate her payoff: let ~t denote theobjective self’s (unbiased) belief about  in period t. The objective self is interested solely in
12

For a different approach, see Brocas and Carrillo (2008) who model the brain as a hierarchical organization.

11

the expected value of the project, and her payoff in period 1 is hence given by1O (a1 ; 1 ) = R(a1 ; ~1 ) + Æ O2 ( 1 );where O
2 ( 1 ) is the objective self’s expected payoff in period 2 as a function ofÆ 2 (0; 1℄ the objective self’s discount factor. Similarly, the payoff in period 2 is
2O (a1 ; a2 ; 1 ; 2 ) = R(a2 ; ~2 ):

(2)

1 and

(3)

The subjective self: The subjective self represents a more primitive and instinctive side of
DM who is myopic and, with imperfect knowledge about herself, cares about her self-images(ego preferences). The prior distribution of  , as recognized by the subjective self, is given byRR

F with mean  := dF and variance 2 := 2 dF 2 . The prior mean reflects DM’s initial
self-confidence level while the variance reflects its fragility: we say that DM is more secure
about her self-images when  2 is smaller and close to zero. Being myopic, the subjective self
totally disregards the value of the project which realizes in the future and instead cares only
about the immediate gain, i.e., her self-images at each moment. The subjective self’s payoffin each period is thus simply given by1S ( 1 ) = E [ j 1 ℄;(4)

2S ( 1 ; 2 ) = E [ j 2 ℄;(5)

The subjective self is totally manipulable and capable of believing whatever she wants tobelieve.
The intrapersonal conflict: The subjective informativeness is chosen so as to maximize theoverall payoff t , which is defined as a weighted average of  O and  S :t = tS + (1whereis the subjective self’s share. Define)tO ;:= =(1(6)), which we take as a measure ofDM’s willpower where she is regarded as possessing strong willpower to regulate herself (orthe subjective self) whenis large.

12

A critical aspect of the model is that once the subjective informativeness is chosen, it
persists over time and distorts subsequent decisions. We capture this aspect by assuming thatthe actor is naive and takes

t as if it represents the true state of the world when choosing

the optimal action. This entire process eventually amounts to the following constrained
optimization problem:

max
t ;
t
subject to

at = probf = 1 jgt :In what follows, the entire process is described as if DM singlehandedly solves this constrained problem. Other than the interpretation detailed just above, this setup yields a wide
variety of interpretations as to the structure behind it. In any event, though, the bottom lineis the tradeoff between distorted beliefs and distorted actions and any structure that can (atleast partially) capture this aspect can suffice for our purposes.

3 Optimal information processing
3.1 Preliminary
Before we move on, we first describe in some depth how the beliefs are formed in this model.
There are two unknowns in this model, the ability type  and the state of nature  , and a belief
must be formed on each of them. Let gt denote the informativeness of the signal in periodt, which is either ~ or t depending on who forms the belief. Given some informativeness(g1 ; g2), define1 (s1 ; g1 ) := E [ j s1 ; g1 ℄; 2 (s1 ; s2 ; g1 ; g2 ) := E [ j s1 ; s2 ; g1 ; g2 ℄;as the belief about  . Similarly, define1 (s1 ; g1 ) := probf = 1 j s1 ; g1 g; 2 (s1 ; s2 ; g1 ; g2 ) := probf = 1 j s1 ; s2 ; g1 ; g2 g;denote the belief about  .

13

To be more precise, the objective self and the actor must form a belief about the state of
the world t . Given some informativeness g1 , the best estimate of  in period 1 is obtained as1 (1; g1 ) =1 + g1  ;2(7)

where gt = ~ when the belief is evaluated by the objective self and gt = t if it is evaluated by
the actor.13 Due to the symmetric nature of the states, 1 (0; g ) = 1

1 (1; g). Since the states

are symmetric, we shall hereafter focus on s1 = 1 without loss of generality. The manipulable
range of the belief is depicted in figure 1.
[Figure 1]
With an additional signal in period 2, the belief about  is updated and given by(1 + g2 )(1 + g1)
(1 + g2)(1 + g1) :=2((1 g2 )(1 g1) + (1 + g2 )(1 + g1))2(1 + g1 g2)(1 g2 )(1 + g1)
(1 g2)(1 + g1) ;2 (1; 0; g1 ; g2 ) ==2((1 + g2 )(1 g1) + (1 g2 )(1 + g1))2(1 g1 g2)
2 (1; 1; g1 ; g2 ) =

(8)
(9)

where gt depends on who forms the belief in the same way as above.14 To ease notation,
defineC (g1 ; g2 ) := 2 (1; 1; g1 ; g2 ) and I (g1 ; g2 ) := 2 (1; 0; g1 ; g2 ):The manipulable range of the belief is depicted in figure 2.
[Figure 2]
Being uncertain about her own ability, on the other hand, the subjective self must form abelief about  , which we refer to as the self-confidence level. The inference is only relevantin period 2 because one signal conveys no information about  . The self-confidence level inperiod 2 is obtained asRg g 1 (1 + )dF + (1 g1 g2 )  + g1 g2 E [2 ℄2 (1; 1; g1 ; g2 ) = 1 2 0R 1
= 1+g g  ;g1 g2 0 (1 + )dF + (1 g1 g2 )
1 2

(10)

In either case, E [ ℄ =  is imposed to obtain the belief.
The belief E [ ℄ =  is again imposed to obtain this updated belief. This implies that both the objective self
and the actor believe that the true ability type is known and fixed at  (no updating through the observationof s1 and s2 ). Though somewhat restrictive, this assumption drastically simplifies the analysis and thus helps
to yield clearer and sharper predictions while preserving the substance of the model. In section 4, we relax thisassumption to clarify its role and implications.
13

14

14

R

g g 1 (1 )dF + (1 g1 g2 )  g1 g2 E [2 ℄2 (1; 0; g1 ; g2 ) = 1 2 0R 1
(11)
= 1 gg :g1 g2 0 (1 )dF + (1 g1 g2 )1 2
where, since the belief is formed by the subjective self, gt = t . Similarly as above, defineC ( 1 ; 2 ) := 2 (1; 1; 1 ; 2 ) and I ( 1 ; 2 ) := 2 (1; 0; 1 ; 2 ):1 2 > 0 and 2 > 0, i.e., consistent signals are a good news

Notice that C >  > I for any

for DM while inconsistent signals are a bad news.

3.2 Flexibility: the second-period problem
In period 2, DM observes an additional signal, which may nor may not be consistent withthe first signal. DM’s flexibility, which is defined as the ability to respond rationally andobjectively to new information, is tested in this situation. When DM is prejudiced by the firstsignal and fails to respond objectively to the second signal, the consequent action is distorted
and becomes necessarily inefficient. Here, we examine when and to what extent DM exhibits
this type of behavioral bias.
In period 2, DM observes s2 and assigns the subjective informativeness to it, taking (s1 ; s2 )and

1 as given. The optimization problem is thus defined asmax
22 (s1 ; s2 ; 1 ; 2 ) + (1)R(2 (s1 ; s2 ; 1 ; 2 ); 2 (s1 ; s2 ; ~; ~)):

The first-order condition is obtained as

2
 2

2(1

2 = 0;)(2 (s1 ; s2 ; 1 ; 2 ) 2(s1 ; s2 ; ~; ~))  2assuming that there exists an interior solution. The solution is obtained as a function of

(12)

1 and

denoted as 2 (s1 ; s2 ; 1 ). Given some optimal belief 2 (s1 ; s2 ; 1 ), we refer to b2 (s1 :s2 ; 1 ) :=2 (s1 ; s2 ; 1 ) ~2 (s1 ; s2 ; ~ ; ~ ) as the optimal bias as perceived by the objective self. We takethis as a measure of flexibility where DM is less prejudiced and hence more flexible when thebias is smaller.
When the signals are consistent, this condition becomes

1 2(1 + 1 2 )2(1

2)(2 ~C ) (11 + ( 1 ) )2 = 0;
1 2
15

(13)

where ~C := C (~ ; ~ ). The optimal belief C in this contingency as a function ofbyC ( 1 ) ~C =2 1
1 ( 1 )2 ;1 is given(14):= =(1 ) is a measure of DM’s willpower. It follows from this that C > ~Cfor any 1 > 0, meaning that DM exaggerates her information even more when the observed
wheresignals are consistent.
Similarly, when the signals are inconsistent, this condition becomes(1

2)(2 ~I ) (11 ( 1 ) )2 = 0;
1 2

1 2 + (11 2 )2

where ~I := I ( 1 ; ~ ). The optimal belief I as a function of

I ( 1 ) ~I =which again implies that I > ~I for any(15)

1 is then given by2 1
1 ( 1 )2 ;(16)

1 . This means that DM undervalues the second

signal and instead favors the first one in order to justify her prior stance. Note also thatthe optimal bias is symmetric, i.e., b2 (1; 0; 1 ) = b2 (1; 1; 1 ) for any

1 . Define b2 ( 1 ) :=b2 (1; 0; 1 ) = b2 (1; 1; 1 ), which can be seen as a measure of DM’s flexibility.

Proposition 1 The optimal second-period bias is always positive and given byb2 ( 1 ) =For any given2 1
1 ( 1 )2 :1 , the bias is increasing in , 2 and  and disappears as

Moreover, the bias is increasing in! 0 and/or 2 ! 0.

1.

P ROOF: Most of the proposition is self-evident from the discussion made thus far. We only

1 . This is the case if
2 (1 + ( 1 )2 )(1 ( 1 )2)2 > 0;show that the optimal bias is increasing in(17)which always holds.
Q.E.D.

16

Several remarks are in order. First, the optimal second-period bias is always positive,
meaning that DM biases her decision in the direction of the first signal. There are two sides tothis biased information processing. When the observed signals are consistent, DM overreacts
to the second signal, becoming rather obsessive about her initial stance. As a flip side, when
the observed signals are inconsistent, she downplays the importance of the second signal andsticks stubbornly with her initial stance. In either case, with imperfect willpower> 0 andimperfect knowledge about herself  2 > 0, DM in general exhibits a degree of inflexibility as
she fails to respond rationally and objectively to new information.
Second, taking

1 as given, the size of the bias depends on attributes such as the self-

confidence level and fragility as well as the strength of willpower. The effects of the selfconfidence fragility and the strength of willpower are identical and relatively straightforward.
The bias is smaller when DM is more secure about herself and/or she has strong willpower
to regulate herself: in fact, when DM is perfectly secure about herself ( 2 = 0) or has perfect
willpower (= 0), the intrapersonal conflict disappears and she exhibits no bias whatso-

ever.15 What is more interesting but intuitively less straightforward is perhaps the effect of
the self-confidence level. The analysis reveals that DM who has more confidence in herself
is less likely to reverse her prior decisions and hence more prone to exhibiting inflexibility
in both ways. This suggests that although high ability itself is helpful in making good judgements, high self-confidence is often an obstacle to making objective decisions. This result
comes from the fact that the accuracy of the first signal is more sensitive to ability than thatof the second signal. Since DM with high self-confidence trusts her first observation morethan that with low self-confidence, the cost of biasing the interpretation of the second signal
is lower in a relative sense. This biases her information processing in order to protect her
self-images, making inflexibility more of a problem for DM with high self-confidence.
Finally, it is important to note that the optimal bias is also a function of an endogenous
choice variable

1 . The bias is larger when DM puts more stock in the first signal and de-

15

As an alternative interpretation, the self-confidence fragility can be taken as reflecting how the predictability of the underlying environment is related to DM’s ability. For instance, if the accuracy of the first signal isless ability-intensive and related only weakly to  , not much is revealed about her ability type. The situation
corresponds to a case with a smaller  2 .

17

creases as

1 decreases, meaning that vision and flexibility are substitutes. In particular, when

1 = 0, i.e., DM believes that the first signal is not at all informative, nothing she observes
undermines her self-confidence, and there is hence no need to bias her decision making inorder to justify herself. This aspect gives rise to critical dynamic interactions, because the objective self in period 1 can reasonably control the subjective self in period 2 by disregarding
the first signal and remaining rather ambiguous. This is precisely the problem faced by DMin period 1, which we will next turn to.

3.3 Vision: the first-period problem
The prediction ability is tested more in period 1, so that the accuracy of the first signal
depends positively on DM’s ability. In this setting, vision is defined as the ability to respondrationally and objectively to early information before things unfold themselves. The key
factor at this stage is the presence of time-inconsistent objectives, which stems from thedifference in time horizon between the two selves. The objective self knows that her secondperiod prediction will be biased, to the detriment of her own interests, to accommodate thesubjective self’s ego preferences. The objective self thus has an incentive to minimize thisbias, if it is possible at all. There is indeed a way to achieve this because, as we have seen,
the optimal bias in period 2 depends positively on the informativeness of the first signal

1.

Disregarding the first signal frees the future self from any concern about her self-images andallows her to react more objectively to the second signal, thereby minimizing the prediction
bias which works against the objective self’s interests. There is of course a cost associatedwith it, because a failure to objectively utilize the first signal generally results in an inefficientaction in period 1. The optimal bias in period 1 is determined by this tradeoff.
Since
choice of

1 and 2 are intertemporally linked, DM can influence her future self through the
1 . The objective self’s expected payoff in period 2 as a function of 1 is given by22O2( 1 ) = 1 +2~  C ( 1 ) + 1 2~  I ( 1 );(18)

C ( 1 ) := R(C ( 1 ); ~C ) = ~C (1 C ( 1 )) (1 ~C )C ( 1 );

(19)

where

18

I ( 1 ) := R(I ( 1 ); ~I ) = ~I (1 I ( 1 )) (1 ~I )I ( 1 ):(20)

Upon observing s1 = 1, DM’s problem in period 1 is defined as

max
1





) R(1(1; 1 ); 1 (1; ~)) + Æ O2( 1 ) : + (1

Notice that the myopic subjective self has nothing at stake in period 1, so that the problem isstrictly about how the objective self regulates the future subjective self.
Define ~1 := 1 (1; ~ ) and b1 ( 1 ) := 1 (1; 1 )~1 where we take b1 as a measure of DM’s

vision: the larger b1 is, the more visionary she is.16 The first-order condition is then given bySince

2b1( 1 ) 1 + 1 + ~2 C + 1 ~2  I = 0:
Æ  1
2 1
2 1

(21)

C Id==2b2 ( 1 ) C ; 1  1d1

(22)b1 ( 1 ) = R( 1 )b2 ( 1 );(23)(21) can be written as

where



R( 1 ) :=

C
Æ d
d 1

2Æ 2 (1 + ( 1 )2 ) ;=1(1 ( 1 )2 )2
 1

(24)

Proposition 2 The optimal first-period bias is always negative. The bias is increasing in ,  2
and Æ and disappears as they tend to zero, whereas it is decreasing in  if

1 4(~ )2 3(~ )4 > 0:Moreover,1 = 0 (the complete lack of vision) if  is sufficiently small.

P ROOF: See Appendix.

The optimal first-period bias is always negative, in contrast to the second-period bias,
where DM biases her prediction towards her prior mean and takes an ambiguous stance toallow her future self to be free of any self-esteem concerns. This is taken as a sign of the lack16

Evidently, there is a right degree of vision, i.e., more vision is not necessarily better. DM indeed takes anexcessively strong stance when b1 > 0 although, as we will see later, this would not occur in equilibrium.

19

of vision (or indecisiveness). As in period 2, the bias is increasing inand  2 , because theneed to regulate the future self is simply larger. This indicates that DM fails to articulate her
vision when she is insecure about herself and/or lacks willpower to regulate herself.
In period 1, there is another factor that comes into play, i.e., the objective self’s discountfactor Æ . In general, the bias is decreasing in Æ , meaning that the more forward-looking DM
is, the less visionary she becomes. This is perhaps intuitive because the source of the bias
lies in time-inconsistent objectives, which arise from the difference in time horizon between
the two selves. As Æ ! 0, the objective self becomes more myopic and time-inconsistency
eventually disappears, meaning that more far-sighted individuals tend to be less visionary
and take a more ambiguous initial position.17
It is, on the other hand, more complicated to see how a change in  affects
hand, an increase in  enlarges the second-period bias for any given
marginal gain of lowering

1 . On one

1 , which raises the

1 . On the other hand, there is also a countervailing effect. To see

this, recall that an increase in  tends to make DM more inflexible in period 2 because withthe first signal being more accurate, the cost of disregarding the second signal is relatively
small. As can be imagined, the situation is totally reversed in period 1: the cost of disregarding the first signal is now larger for DM with high self-confidence. While the optimal bias
could go either way due to this tradeoff, it is decreasing in  when ~ is sufficiently small,18
because the second-period bias becomes negligibly small, and the need for self-regulation
diminishes in this case. Then, since the cost of disregarding the first signal is larger, thefirst-period bias becomes smaller for DM with high self-confidence who articulates a clearer
vision.
The effect of the self-confidence level can also be seen from an alternative perspective.
Notice that, as  ! 0, the choice of

1 becomes totally irrelevant, because the signal is not

Of course, there are several caveats for this interpretation. First, Æ is apparently not the only measure of
one’s far-sightedness and patience. Here, we vary Æ while fixing the subjective self’s discount factor at zero: we
obtain the opposite implication if we instead vary the subjective self’s discount factor while fixing Æ at some level,
say one. Also, the model only predicts that an increase in Æ (caring more about future) makes DM less visionary
fixing all other factors constant. This recognition is important because Æ may be correlated with other attributes
if more patient individuals tend to possess better cognitive abilities.
18[0; 1℄ if ~ < 
0:464. Of course, this is only a sufficient
The bias is in fact decreasing in  for all 
condition, indicating that the bias is decreasing in  for a wider range of parameter values.
17

2



20

informative anyway, no matter how she interprets it. Since the cost of biasing the interpretation is vanishingly small, there is no reason to assign any positive informativeness to thefirst signal. As the proposition indicates, the optimal response is the complete lack of vision( 1 = 0) for DM with sufficiently low self-confidence. When that happens, DM totally disregards early information and does not make up her mind until things become sufficiently
clear.

3.4 A tradeoff between vision and flexibility
In section 3.2, we have discussed how the second-period bias b2 varies in response to changes
in parameters such as ,  2 and  when

1 is exogenously given and fixed. Since 1 itself

is a function of those parameters, however, indirect effects through1 must also be taken

into account to fully understand the overall impact on flexibility. As suggested, vision andflexibility are substitutes in that when one goes up, the other other must go down. Changes
in exogenous parameters also affect the relative value of vision and flexibility, as capturedby R( 1 ), thereby yielding some indirect effects. Although our primary focus is on the direct
effects, we here briefly discuss the overall impact of exogenous parameters on the degree of
flexibility.
or  2 . Since these two parameters yield

We first examine the impact of changes inexactly the same effect, we focus on changes in . As we have seen, an increase in

1 and, taking 1 as given, also 2 . At the same time, though, a change inraisesalso changes

the relative value of vision and flexibility. While the bias increases up to some point with anincrease in , the cost of inflexibility rises as

becomes sufficiently large. Oncereachessome point, therefore, the first-period bias becomes less of a concern, and DM attempts tominimize the second-period bias by decreasingof changes in

1 towards zero. This indicates that the impact(or  2 as well) on the second-period bias is non-monotonic, where the bias

disappears whenis either too small or too large.

Second, the impact of changes in Æ is relatively straightforward. Because it yields nodirect effect on the second-period bias, we only need to look at the indirect effect though

1 . As we have seen, an increase in Æ decreases 1 away from ~ . This in turn monotonically21decreases the second-period bias, making DM more flexible.
Finally, the impact of changes in  is somewhat more complicated, because the direct
effect can in principle go either way. As we have seen, though, the second-period bias isdecreasing in  for a wide range of parameter values. In that case, we can obtain an unambiguous prediction because both the direct and indirect effects work in the same direction.
For a sufficiently low value of , DM is perfectly flexible although it comes at the expense of
the complete lack of vision. An increase in  then unambiguously raises the second-period
bias, where DM becomes less and less flexible. We can thus summarize this finding as follows: while high self-confidence per se makes DM more visionary, it makes her less flexible inthat she sticks excessively to her initial stance.

4 Extensions
We have made several assumptions, some of which are made strictly to avoid unnecessary
complication. Among them, we have somewhat arbitrarily assumed that the actor’s belief
about  is constant and fixed at .19 This assumption has two aspects: one is that the actor
has secure knowledge about  where the prior variance of  is zero; the other is that theactor’s prior expectation of  coincides with the subjective self’s. We deliberately chose thisspecification as it simplifies the analysis while preserving the substance of the model. In thissense, it is important to check robustness of our main results to some possible alterations tothe basic setup. Here, we relax these assumptions to show that the main results of the paper
basically go through with alterations to the baseline model. In each case, the first-ordercondition in period 1 is virtually identical, so that similar conclusion would follow if the basic
properties in period 2 were to hold.

4.1 The actor with insecure knowledge about herself
First, we have assumed that the actor has secure knowledge about herself in that her estimateof the ability type is constant regardless of what she observes. The role of this assumption is
We have also assumed that the objective self’s belief is fixed at , but this assumption plays only a minor role
anyway since the bias is measured in terms of a deviation from the objective self’s belief.
19

22

fairly innocuous in the qualitative sense, mostly to ease the computation and obtain sharperand clearer predictions. To see the impact of this assumption, consider an alternative specification where the actor has identical knowledge to the subjective self, where the prior belief
is given by F with mean  and variance  2 . The only change that it brings about is that theactor now also learns about herself, which affects her estimate of the realized state. The exact
impact of this change depends on how the actor utilizes the revised belief about her ability
type in estimating the realized state.
If the actor cannot revise the belief in retrospect, i.e., cannot reestimate 1 with the revised
belief 2 , the beliefs are still given as in (8) and (9), and nothing changes.20 Things becomea bit more complicated, however, if she goes back in time and reestimate 1 using the revised
belief 2 . In this case, the beliefs are now obtained as(1 + 2 )(1 + 1 C ) :2(1 + 1 2 C )(1 2 )(1 + 1 I ) :I ( 1 ; 2 ) =2(1 1 2 I )

C ( 1 ; 2 ) =

(25)
(26)

The first-order conditions in period 2 are now modified as2 1(1 + 1 2 )2 (1)(CC
1 ( 1 ~C )2 + 1 (1 22 ) 
 2
~C )
= 0;
(1 + 1 2 C )2(27)

I
1 ( 1 I )2 1 (1 2 2 ) 
 2
= 0;
(1 1 2 I )2(28)

for consistent signals and

(1

2 1
1 2

+ (1
)2

)(I ~I )for inconsistent signals.21 As can easily be seen, the problem becomes much more complicated, but the basic properties of the model remain largely intact. First, since

(1
when

2 1

> 0;
1 2 )2(29)

1 > 0, DM exaggerates a consistent second signal if

1 ( 1 ~C )2 + 1(1

C

22) 

2

> 0:

(30)

This is perhaps the case if the actor only remembers 1 but not how that belief was formed in the first place.
As already state, the assumption that the objective self’s belief is fixed at  only has a minor impact. The only
difference it makes is that ~C and ~I are now estimated with C and I , respectively, instead of .
20

21

23

This holds since C is increasing in

2 . Similarly, DM discount an inconsistent signal (I > ~I )if

1 ( 1 I )2

1 (1which also holds because I is now decreasing inbias disappears as

I

22) 

2

> 0;

(31)

2 . Second, one can easily verify that the! 0 or 2 ! 0. Finally, the choice of 1 has a critical impact on the bias,

which gives rise to the same self-control problem.

4.2 The actor’s prior coincides with the subjective self’s
Another assumption that might seem restrictive is that the actor’s prior coincides with thesubjective self’s prior  (we for now set the actor’s prior variance back to zero). Suppose
instead that the actor’s prior belief is fixed at 
~ which may or may not coincide with . With
the differing priors, the first-order condition in period 2 is

2 1

(1 + 1 2 )2 (12)(2 ~C ) (11 + ( 1 ~~) )2 = 0;
1 2

(32)

2
)(2 ~I ) (11 ( 1 ~~) )2 = 0;
1 2

(33)

for consistent signals and

(1

2 1
1 2

+ (1
)2

for inconsistent signals. It is evident from these that the same conclusions hold in this caseas well: consistent signals are exaggerated while inconsistent ones are discounted, and thebias disappears as! 0 or 2 ! 0. Also, the choice of 1 affects the size of the bias, which

again gives rise to the same self-control problem.

5 Conclusion
The paper sheds light on two important aspects of effective leadership – vision and flexibility– and provides a framework to illustrate the workings behind these seemingly contradictory
notions, with particular focus on a human tendency to exaggerate favorable information anddiscount unfavorable information. As the misalignment of incentives is a typical source of
inefficient decision making in an organization, the driving force of the model is the misalignment of incentives within oneself. In the present model, two distinct sources of intrapersonal24

conflicts are merged into a single framework: on one hand, the objective and subjective
selves differ in their objectives, which eventually forces DM to bend the truth to protect herego; on the other hand, the two selves also differ in their time horizon, thus leading to timeinconsistent objectives type and, as a direct consequence, a type of of self-control problem.
This framework allows us to illuminate the workings behind vision and flexibility: among
other things, we show that vision and flexibility are substitutes where a decision maker withweak willpower often strategically settles for an ambiguous initial stance in order to allow
her future self to act more flexibly.

Appendix: Proof of Proposition 2
Since

1 
= ;
 1 2
C I2 (1 + ( 1 )2 )== 1  1(1 ( 1 )2 )2 ;

(34)
(35)

the first-order condition becomes( 1 ~)2 + 2 1 2 (1 + ( 1 )2) = 0:
4Æ
1 ( 1 )2 (1 ( 1 )2)2
DefineD( ; 2 ; ; 1 ) :=4( 2 )2(1 + ( 1 )2) 1 ;2 (1 ( 1 )2 )3

(36)

(37)

so that the optimal informativeness is obtained as the following fixed point:

1=~
It is immediately clear from this thatÆD( ; 2 ; ; 1 ):(38)

1 < ~ . Moreover, the size of the bias is increasing in Æand disappears as Æ ! 0. For all other cases, the properties of

1 depend on how D respond tochanges in exogenous parameters such as ,  2 and . Since the size of Æ is totally irrelevant(as long as Æ > 0), we let Æ = 1 for notational simplicity in what follows.
We now examine how

1 respond to changes in , 2 and . It is easy to see that D= >0, implying that 1 is decreasing and the size of the bias is hence increasing in . By the same25

logic, one can show that the size of the bias is increasing in  2 . The effect of  is, on theother hand, more complicated. To see this, note that D= < 0 if

( 1 )2 (1 ( 1 )2) (1 + ( 1 )2)(1 4( 1 )2 ) < 0:(39)which can be written as

1 4( 1 )2 3( 1 )4 > 0:
Since we already know that(40)

1 < ~ , a sufficient condition for this is

1 4(~ )2 3(~ )4 > 0:(41)

When this condition holds, the size of the bias is decreasing in .
Finally, we show that1 ! 0 as  ! 0. This is relatively straightforward sincelim D( ; 2 ; ; 1 ) = 1;

!0

for any(42)

1 > 0. An interior solution thus fails to exist and the optimal choice is bounded at

1 = 0.
Q.E.D.

References
Akerlof, Geroge A. and William T. Dickens, 1982, The Economic Consequences of Cognitive
Dissonance, American Economic Review, 72, 307-19.
Babcock, Linda and George Loewenstein, 1997, Explaining Bargaining Impasse: the Role of
Self-Serving Biases, Journal of Economic Perspectives, 11, 109-26.
Benabou, Roland, 2008a, Ideology, Journal of the European Economic Association, 6, 321-52.
Benabou, Roland, 2008b, Groupthink: Collective Delusions in Organizations and Markets,
mimeo, Princeton University.
Benabou, Roland and Jean Tirole, 2002, Self-Cinfidence and Personal Motivation, Quarterly
Journal of Economics, 117, 871-915.
26

Benabou, Roland and Jean Tirole, 2004, Willpower and Personal Rules, Journal of Political
Economy, 112, 848-86.
Benabou, Roland and Jean Tirole, 2006, Belief in a Just World and Redistributive Politics,
Quarterly Journal of Economic, 121, 699-746.
Benabou, Roland and Jean Tirole, 2007, Identity, Dignity and Taboos: Beliefs as Assets, CEPR
Discussion Paper 6123.
Brocas, Isabelle and Juan D. Carrillo, 2008, The Brain as a Hierarchical Organization, American Economic Review, 98, 1312-46.
Carrillo, Juan D. and Thomas Mariotti, 2000, Strategic Ignorance as a Self-Disciplining Device, Review of Economic Studies, 67, 529-544.
Compte, Olivier and Andrew Postlewaite, 2004, Confidence-Enhanced Performance, American Economic Review, 94, 1536-57.
Crary, William G., 1966, Reactions to Incongruent Self-Experiences, Journal of Consulting
Psychology, 30, 246-52.
Ishida, Junichiro, 2008, Decisiveness, OSIPP Discussion Paper DP-2008-E-002.
Köszegi, Botond, 2006, Ego Utility, Overconfidence, and Task Choice, Journal of the European
Economic Association, 4, 673-707.
Li, Wei, 2007, Changing One’s Mind when the Facts Change: Incentives of Experts and the
Design of Reporting Protocols, Review of Economic Studies, 74, 1175-94.
Prendergast, Canice and Lars Stole, 1996, Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning, Journal of Political Economy, 104, 1105-34.
Pyszczynski, Tom; Jeff Greenberg and Kathleen Holt, 1985, Maintaining Consistency between
Self-Serving Beliefs and Available Date: a Bias in Information Processing, Personality andSocial Psychology Bulletin, 11, 179-90.
Rabin, Matthew and Joel L. Schrag, 1999, First Impressions Matter: A Model of Confirmatory
Bias, Quarterly Journal of Economics, 114, 37-82.
27

Rotemberg, Julio J. and Garth Saloner, 1994, Benefits of Narrow Business Strategies, American Economic Review, 84, 1330-49.
Rotemberg, Julio J. and Garth Saloner, 2000, Visionaries, Managers, and Strategic Direction,
RAND Journal of Economics, 31, 693-716.
Santos-Pinto, Luis and Joel Sobel, 2005, A Model of Positive Self-Image in Subjective Assessment, American Economic Review, 95, 1386-1402.
Van den Steen, Eric, 2004, Rational Overoptimism (and Other Biases), American Economic
Review, 94, 1141-51.
Van den Steen, Eric, 2005, Organizaitonal Beliefs and Managerial Vision, Journal of Law,
Economics, and Organization, 21, 256-83.
Wyer, Robert S. and Frey, Dieter, 1983, The Effects of Feedback about Self and Others on the
Recall and Judgements of Feedback-Relevant Information, Journal of Experimental Social
Psychology, 19, 540-59.
Zuckerman, Miron, 1979, Attribution of Success and Failure Revisited, or: the Motivational
Bias is Alive and Well in Attribution Theory, Journal of Personality, 47, 245-87.

28

0:5

1+~
2

1+
2

Figure 1: The manipulable range of the belief when s1 = 1 ( = 0:5, ~ = 0:5).

s2 = 0s2 = 1

0:5

1+ 1 
2

Figure 2: the manipulable range of the belief when s1 = 1 ( = 0:5, ~ = 0:5,29

1 = 0:8).