The authors 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 signalling 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). pdf
