May, 2013. Paper abstract bibtex
Over-optimism is a ubiquitous aspect of real-life expectations. We suggest that over-optimism is related to both utility and choices, rather than being merely cheap talk. Our enhanced utility model includes an explicit role for expectation formation, and features costs associated with self-delusion. We predict and then verify using unique survey data that work effort, caring about the future, and over-optimism are all positively related. We derive the deep parameters of the utility function from social evolutionary processes. Finally, we explore the implications of our theory for the optimal information-revelation policy of fully-informed principals.