Confidence Management and the Free-Riding Problem∗

This paper provides an instrumental explanation of why people actively manage their self-confidence and others ’ confidence in them. In a simple team production prob-lem where self and others ’ confidence in one’s ability can affect the agents ’ incentives to exert effort, we show that agents can, by judiciously managing self and others ’ confi-dence, alleviate the free riding problem prevelant in interpersonal interactions. We aslo examine various confidence-managing tactics studied by social psychologists. “The man who has confidence in himself gains the confidence of others. ” (Hasidic Saying) “She had learned the self-deprecating ways of the woman who does not want to be thought hard and grasping, but her artifices could not always cover the nakedness of her need to excel. ” (The Cape Ann, Faith Sullivan, 1988.) People actively manage their self-confidence and the confidence that others have in them. They care about the self-confidence of those with whom they interact. Social psy-chologists have studied in great length how people engage in impression management (see, for example, Tedeschi 1981 and references therein). But why do people engage in confidence ∗Very preliminary and all comments are welcome. I would like to thank Roland Benabou, Stephen Morris and Jean Tirole for their encouragement and useful discussions in the beginning stage of this paper. All errors are mine