The maintenance and enhancement of self-esteem has long been identified as a fundamental human concern, playing a critical role in motivation, affect, and social interactions. This project brings the issue of self-knowledge into the realm of economic analysis, and shows that this has important implications for how agents process information and make decisions in areas as diverse as education, investment, contracts and bargaining, or family and workplace relations. Conversely, the tools of economic modelling can help understand that a number of puzzling facts and behaviors documented by psychologists are often quite rational, and determine when these strategies are effective and when they backfire. The first premise of the model is that people have imperfect knowledge of their own abilities and other enduring characteristics, and constantly learn about them from experience and interactions with others. The second premise is that these self-perceptions affect the individual's incentives to undertake or persevere in a variety of tasks; in most activities, a higher self-confidence in one's ability or willpower enhances the motivation to act. This, in turn, generates a motive for the manipulation of the individual's self-image, both by himself and by others. First, an individual suffering from a bias towards instant gratification (time inconsistency) has a vested interest in enhancing and protecting his self-confidence, so as to counter his own tendency to give up too easily (procrastinate, succumb to short-term temptations, etc.). Alternatively, the manipulator can be another person (parent, teacher, spouse, friend, colleague, manager) who is eager to see the individual persevere and succeed in the task at hand. The first part of the project focuses on individual behavior and beliefs, explaining in particular why people value self-confidence, and how this concern affects their cognitive and decision-making processes. It helps account for why rational individuals often choose to remain ignorant about their own abilities, or "blind" to important signals from their environment; and why they sometimes deliberately impair their own performance or choose overambitious tasks where they are doomed to fail (self-handicapping). Another central focus of the research is the phenomenon of selective memory or awareness, that is, people's tendency to remember ego-enhancing information more than ego-threatening ones (e.g., successes more than failures). In turn, this helps account for the widely documented fact that most people have overoptimistic assessments of themselves (self-serving beliefs). A formal welfare analysis then allows us to evaluate whether such "positive thinking" and similar forms of self-deception are really helpful to the individual, or whether it is ultimately better to always "be honest with yourself". The project also sheds light on why people sometimes attempt to lower their own self-confidence.
The second part of the project extends the analysis to imperfect knowledge of one's strength or weakness of will. This allows us to understand how the personal rules that people set for themselves (diet, exercise regimen, moral code etc.) can be self-enforcing, and help them control their impulses. It can also explain the "precedent-setting" role of lapses in adherence to a rule, and how the fear of subsequently "losing faith in oneself" helps the individual achieve self-discipline. Another issue addressed is how the self-monitoring which underlies the effectiveness of rules is undermined by opportunistic distortions of memory and excuse- making. Last but not least, the model helps account for the occurrence of excessively "legalistic" rules which result in compulsive behavior, such as miserliness, workaholism, or anorexia.
The third part of the project turns to interpersonal settings and contractual relationships. First, it provides a formal economic analysis of the conflict between extrinsic and intrinsic motivation emphasized by a large literature in psychology and sociology. It shows in particular that rewards for performance offered by a principal (manager, parent) can indeed have, through their impact on the self-image of the agent (worker, child), or his perception of the task, "hidden costs" which make them only weak reinforcers of the desired behavior in the short run, and negative reinforcers once they are withdrawn. The model also sheds light on when it is actually the case that empowering an agent increases his motivation and effort, while closely monitoring his performance has the reverse effect. Another puzzle is that while boosting others' self-esteem is a pervasive phenomenon, people also often criticize or downplay the achievements of their spouse, child, colleague and other partners on whose effort they depend. The project analyzes such ego-bashing as reflecting battles for dominance (real authority) within the relationship. Finally, it studies situations where the agent has private information and engages in variety of self-presentation strategies such as pleas for leniency, self-deprecation, excuse-making, self-promotion, intimidation, ingratiation, and the like.
