DP8722 Self-Esteem, Shame and Personal Motivation

Author(s): Roberta Dessí, Xiaojian Zhao
Publication Date: December 2011
Keyword(s): cultural transmission, overconfidence, shame
JEL(s): D82, D83, Z13
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8722

Evidence from psychology suggests that overconfidence is more important in North America than in Japan. The pattern is reversed for shame, an emotion that appears to play a more important role among Japanese than North Americans. We develop a model that endogenizes these differences, building on a tradeoff between the benefits of encouraging self-improvement and the benefits of promoting initiative and new investments. Overconfidence and high sensitivity to shame emerge as substitute mechanisms to induce efficient decisions. We identify the key equilibrium costs as well as benefits of reliance on each mechanism, and the implications for welfare.