Overconfidence and Gender Gaps in Career Outcomes: Insights from a Promotion-Signaling Model

Although gender differences in overconfidence are well documented, their consequences for labor market outcomes remain theoretically underexplored. This paper develops a promotion-signaling model with competitive incentives and endogenous wages to examine how men's higher overconfidence contributes to gender gaps in career advancement and earnings. Results show that overconfident workers exert more effort, are promoted more often, and earn higher wages across hierarchical levels, despite lower expected ability conditional on promotion. Increased effort also fosters human capital accumulation through learning-by-doing, raising productivity. Yet overconfidence is a double-edged sword: it boosts promotions and wages but raises effort costs and can discourage peers.