Conﬁdence Management in Tournaments
An incumbent employee competes against a new hire for bonus or promotion. The incumbent’s ability is commonly known, while that of the new hire is private infor-mation. The incumbent is subject to a perceptional bias: His prior about the new hire’s type diﬀers from the true underlying distribution. He can be either ex ante overconﬁdent or underconﬁdent. We ﬁrst explore whether a ﬁrm that aims to maxi-mize aggregate eﬀort would beneﬁt or suﬀer from the bias. It is shown that debiasing may not be productive in incentivizing eﬀorts. We then study the optimal information disclosure policy. The ﬁrm is allowed to ex ante commit to whether an informative signal—which allows the incumbent to infer the new hire’s type—will be disclosed publicly. We fully characterize the conditions under which transparency or opacity will prevail. We further take a Bayesian persuasion approach to optimally design the ﬁrm’s evaluation and feedback structure. We also consider an alternative context in which the manager is concerned about the expected winner’s eﬀort. We demonstrate that the insights obtained from the baseline setting remain intact. Our results shed light on the extensive discussion of conﬁdence management in ﬁrms and the debate about organizational transparency.