Beliefs and actions: How a shift in confidence affects choices

Confidence is often seen as the key to success. Empirical evidence about whether such beliefs causally map into actions is, however, sparse. In this paper, we experimentally investigate the causal effect of an increase in confidence about one’s own ability on two central choices made by workers in the labor market: choosing between jobs with different incentive schemes, and the subsequent choice of how much effort to exert within the job. An increase in confidence leads to an increase in self-selection into uncertain ability-contingent payment schemes. This is detrimental for low ability workers. Policy implications are discussed.