Workers and organizations routinely choose between complex tasks that differ in their success-payment tradeoff. We study how cognitive ability and overconfidence shape this choice of task complexity, both theoretically and experimentally. Consistent with our model, we find that more cognitively able individuals choose more complex tasks. Conditional on cognitive ability, we find that more overconfident individuals also choose more complex tasks. In about 75% of the decisions, subjects pick their payoff-maximizing task, and higher cognitive ability is weakly associated with more efficient choices of task complexity. But errors are strikingly one-sided: those who fail to choose optimally pick tasks that are too complex. Our findings suggest that organizations should pair task menus and incentives for choosing more complex tasks with information and feedback that help workers assess their ability and probability of success. This preserves the benefits of self-selection while reducing costly overreach.
Teamwork requires more than the general skills that team members bring. In successful teams, members invest in team-specific skill or capital that accumulates within the team and raises the return to coordinated production. We provide the first systematic analysis of dynamic investment in such team skill. Adopting a dynamic game approach, we develop a novel theoretical framework where investment in team skill creates persistent benefits but is risky because the benefits depend on successful team coordination. We then take this framework to the laboratory to study empirically the factors that influence dynamic investment in team skill. We find underinvestment compared to the efficient benchmark. However, investment responds strongly to incentives, in line with specific theory-predicted patterns. Pre-registered traits (theory of mind and propensity to coordinate) predict investment and team-level efficiency. We conclude that careful design of team incentives and selection of team members can facilitate the development of team skill.