Status Characteristics, Cognitive Biases, and Incentives in Teams

Using ideas from status characteristics theory, this essay examines the role of status-induced biases regarding an agent's beliefs about her abilities and those of others. According to the theory of status characteristics and expectation states, individuals who perceive themselves as low in the social hierarchy are less confident in their abilities when grouped with higher status individuals. The model is applied to a simple agency setting to characterize when tournaments (compensation based on relative performance) are less efficient than team-based incentives