pith. sign in

arxiv: 2606.02306 · v1 · pith:MFTQCCGKnew · submitted 2026-06-01 · 💰 econ.TH

Delusions of Grandeur and Their Benefits (and Hazards)

Cooper Howes , Can Urgun , Mark Whitmeyer This is my paper

Pith reviewed 2026-06-28 11:41 UTC · model grok-4.3

classification 💰 econ.TH
keywords optimisminequalityentrepreneurshiptournamentbeliefsexperimentationrelative wealthoutput
0
0 comments X

The pith

Optimism leads to higher output but greater inequality in a tournament with relative wealth concerns.

A machine-rendered reading of the paper's core claim, the machinery that carries it, and where it could break.

The paper models agents competing in a tournament who value both their own wealth and their standing relative to others. Agents search over correlated objects, with their beliefs shaping the random processes that guide those searches. Optimistic beliefs encourage more experimentation and raise total output. The same beliefs widen the spread of outcomes because relative payoffs reward success unevenly. The authors tie this pattern to evidence that inequality and entrepreneurship rates tend to rise together.

Core claim

In the tournament, agents who hold optimistic beliefs about the environment produce higher aggregate output through greater experimentation, yet the distribution of wealth becomes more unequal than under pessimistic beliefs because relative-wealth incentives magnify differences in realized outcomes.

What carries the argument

Tournament payoff structure in which agents care about relative wealth and experiment over correlated objects according to belief-driven stochastic processes.

If this is right

  • Optimism increases aggregate output.
  • Optimism increases inequality.
  • The output-inequality pattern appears in settings with entrepreneurial activity.
  • Belief processes shape both total production and its distribution.

Where Pith is reading between the lines

These are editorial extensions of the paper, not claims the author makes directly.

  • Policies that promote optimism in competitive domains may raise growth while widening gaps.
  • The mechanism offers one account for why high-inequality economies sometimes show elevated entrepreneurship.
  • Varying the degree of correlation among searchable objects could change how strongly optimism affects inequality.

Load-bearing premise

The claim depends on agents valuing their wealth relative to others in the payoffs and on their beliefs determining separate random processes for trying out related items.

What would settle it

An experiment that induces optimism but removes relative-wealth concerns from payoffs and finds no rise in inequality would falsify the proposed mechanism.

Figures

Figures reproduced from arXiv: 2606.02306 by Can Urgun, Cooper Howes, Mark Whitmeyer.

Figure 1
Figure 1. Figure 1: Entrepreneurship and Inequality These figures show country-level correlations between standardized measures of inequality as measured by the Gini index (left panel) or 90/10th percentile ratio (right panel). 17 [PITH_FULL_IMAGE:figures/full_fig_p017_1.png] view at source ↗
read the original abstract

We study a population-wide tournament in which agents, who care both about their absolute and relative wealth, experiment by searching over correlated objects. We explore the role of the agents' beliefs about the environment; namely, the stochastic processes corresponding to their experimentation. We find that although optimism leads to higher output, it also produces greater inequality. We connect these observations with empirical evidence suggesting a positive relationship between inequality and entrepreneurship.

Editorial analysis

A structured set of objections, weighed in public.

Desk editor's note, referee report, simulated authors' rebuttal, and a circularity audit. Tearing a paper down is the easy half of reading it; the pith above is the substance, this is the friction.

Referee Report

2 major / 1 minor

Summary. The paper develops a theoretical model of a population-wide tournament in which agents care about both absolute and relative wealth and experiment by searching over correlated objects. Beliefs enter as stochastic processes governing the experimentation. The central claim is that optimism in these beliefs raises aggregate output while increasing inequality; the authors link this to empirical patterns between inequality and entrepreneurship.

Significance. If the comparative statics are shown to be robust, the work would supply a mechanism through which optimistic belief processes can simultaneously elevate total output and widen dispersion in a tournament setting, offering a microfoundation for observed correlations between inequality and entrepreneurial activity.

major comments (2)
  1. [Model section (belief processes and payoffs)] Model section (definition of belief processes and tournament payoffs): the result that optimism raises output while increasing inequality appears to rest on the specific functional form chosen for the stochastic experimentation processes and the weight placed on relative wealth. The manuscript must demonstrate that the inequality channel survives when the correlation among objects is weakened or when the relative-wealth coefficient is reduced, as these changes could preserve the output effect while reversing or eliminating the inequality effect.
  2. [Comparative-statics derivation] Comparative-statics derivation: because the abstract states that beliefs enter as distinct stochastic processes and that payoffs incorporate both absolute and relative wealth, the paper must show explicitly (via the relevant equations) that the inequality result is not an artifact of the chosen parameterization of optimism or of the correlation structure; otherwise the central claim risks being partly definitional.
minor comments (1)
  1. [Abstract] The abstract mentions an empirical connection but does not cite the specific studies; adding one or two key references would strengthen the bridge to the data.

Simulated Author's Rebuttal

2 responses · 0 unresolved

We thank the referee for the constructive report. We address the two major comments below and indicate the revisions we will undertake.

read point-by-point responses

  1. Referee: Model section (definition of belief processes and tournament payoffs): the result that optimism raises output while increasing inequality appears to rest on the specific functional form chosen for the stochastic experimentation processes and the weight placed on relative wealth. The manuscript must demonstrate that the inequality channel survives when the correlation among objects is weakened or when the relative-wealth coefficient is reduced, as these changes could preserve the output effect while reversing or eliminating the inequality effect.

    Authors: The qualitative effects arise from the interaction of positive correlation in search outcomes with relative-wealth payoffs in a tournament; the specific functional forms are chosen for tractability but are not essential to the direction of the results. We will add a robustness subsection that varies the correlation parameter downward (while keeping it positive) and reduces the relative-wealth coefficient, confirming that the inequality channel remains as long as both features are present. revision: yes

  2. Referee: Comparative-statics derivation: because the abstract states that beliefs enter as distinct stochastic processes and that payoffs incorporate both absolute and relative wealth, the paper must show explicitly (via the relevant equations) that the inequality result is not an artifact of the chosen parameterization of optimism or of the correlation structure; otherwise the central claim risks being partly definitional.

    Authors: We agree that the comparative-statics derivation should be stated more explicitly. In the revision we will insert the relevant equilibrium expressions and differentiate them with respect to the optimism parameter and the correlation coefficient, showing that the increase in dispersion is driven by the differential impact of optimistic beliefs on the upper tail of the outcome distribution rather than by the particular parameterization. revision: yes

Circularity Check

0 steps flagged

No circularity; theoretical finding derived from model assumptions without reduction to inputs.

full rationale

The provided abstract and context describe a theoretical model in which agents search over correlated objects using stochastic belief processes and compete in a tournament with absolute and relative wealth payoffs. The claim that optimism raises output while increasing inequality is presented as an output of this setup. No equations, parameter fits, self-citations, or uniqueness theorems are quoted that would make the result equivalent to its inputs by construction. The derivation is self-contained against the model's stated assumptions, with no evidence of fitted inputs renamed as predictions or ansatzes smuggled via citation.

Axiom & Free-Parameter Ledger

0 free parameters · 0 axioms · 0 invented entities

No details available from the abstract to identify free parameters, axioms, or invented entities.

pith-pipeline@v0.9.1-grok · 5583 in / 976 out tokens · 26402 ms · 2026-06-28T11:41:25.393134+00:00 · methodology

discussion (0)

Sign in with ORCID, Apple, or X to comment. Anyone can read and Pith papers without signing in.

Reference graph

Works this paper leans on

300 extracted references · 3 canonical work pages

  1. [1]

    Whitmeyer, Mark , title =

  2. [2]

    Journal of Economic Theory , year =

    Seel, Christian and Strack, Philipp , title =. Journal of Economic Theory , year =

  3. [3]

    Decisions in Economics and Finance , year =

    Feng, Han and Hobson, David , title =. Decisions in Economics and Finance , year =

  4. [4]

    The Annals of Applied Probability , year =

    Feng, Han and Hobson, David , title =. The Annals of Applied Probability , year =

  5. [5]

    , title =

    Taylor, Curtis R. , title =. American Economic Review , year =

  6. [6]

    2018 , volume =

    Whitmeyer, Mark , title =. 2018 , volume =

    2018

  7. [7]

    2022 , volume =

    Chen, Bo and Chen, Bo and Knyazev, Dmitriy , title =. 2022 , volume =

    2022

  8. [8]

    Review of Economics and Statistics , year =

    Hudja, Stanton and Roberson, Brian and Rosokha, Yaroslav , title =. Review of Economics and Statistics , year =

  9. [9]

    Erkurt, Murat and Ozdenoren, Emre , title =

  10. [10]

    1776 , publisher =

    Smith, Adam , title =. 1776 , publisher =

  11. [11]

    Mathematical Finance , year =

    Feng, Han and Hobson, David , title =. Mathematical Finance , year =

  12. [12]

    SIAM Journal on Financial Mathematics , year =

    Nutz, Marcel and Zhang, Yuchong , title =. SIAM Journal on Financial Mathematics , year =

  13. [13]

    Games and Economic Behavior , year =

    Whitmeyer, Mark , title =. Games and Economic Behavior , year =

  14. [14]

    , title =

    Fang, Dawei and Noe, Thomas H. , title =

  15. [15]

    , title =

    Fang, Dawei and Noe, Thomas H. , title =. Journal of Labor Economics , year =

  16. [16]

    International Journal of Game Theory , year =

    Wagman, Liad and Conitzer, Vincent , title =. International Journal of Game Theory , year =

  17. [17]

    American Economic Journal: Microeconomics , year =

    Boleslavsky, Raphael and Cotton, Christopher , title =. American Economic Journal: Microeconomics , year =

  18. [18]

    Economic Theory , year =

    Boleslavsky, Raphael and Cotton, Christopher , title =. Economic Theory , year =

  19. [19]

    Albrecht, B. C. , title =

  20. [20]

    Games and Economic Behavior , year =

    Au, Pak Hung and Kawai, Keiichi , title =. Games and Economic Behavior , year =

  21. [21]

    Theoretical Economics , year =

    Spiegler, Ran , title =. Theoretical Economics , year =

  22. [22]

    Games and Economic Behavior , year =

    Kim, Kyungmin and Koh, Youngwoo , title =. Games and Economic Behavior , year =

  23. [23]

    Journal of Political Economy , year =

    Au, Pak Hung and Whitmeyer, Mark , title =. Journal of Political Economy , year =

  24. [24]

    and Samet, Dov , title =

    Hillman, Arye L. and Samet, Dov , title =. Public Choice , year =

  25. [25]

    and Riley, John G

    Hillman, Arye L. and Riley, John G. , title =. Economics & Politics , year =

  26. [26]

    and Kovenock, Dan and de Vries, Casper G

    Baye, Michael R. and Kovenock, Dan and de Vries, Casper G. , title =. Economic Theory , year =

  27. [27]

    European Journal of Political Economy , year =

    Barut, Yasar and Kovenock, Dan , title =. European Journal of Political Economy , year =

  28. [28]

    Games and Economic Behavior , year =

    Amann, Erwin and Leininger, Wolfgang , title =. Games and Economic Behavior , year =

  29. [29]

    Games and Economic Behavior , year =

    Che, Yeon-Koo and Gale, Ian , title =. Games and Economic Behavior , year =

  30. [30]

    and Shughart, William F

    Higgins, Richard S. and Shughart, William F. and Tollison, Robert D. , title =. Public Choice , year =

  31. [31]

    American Economic Review , year =

    Moldovanu, Benny and Sela, Aner , title =. American Economic Review , year =

  32. [32]

    and Sela, Aner , title =

    Kaplan, Todd R. and Sela, Aner , title =. Economics Letters , year =

  33. [33]

    International Journal of Industrial Organization , year =

    Liu, Bin and Lu, Jingfeng , title =. International Journal of Industrial Organization , year =

  34. [34]

    The Bell Journal of Economics , year =

    Dasgupta, Partha and Stiglitz, Joseph , title =. The Bell Journal of Economics , year =

  35. [35]

    The RAND Journal of Economics , year =

    Bhattacharya, Sudipto and Mookherjee, Dilip , title =. The RAND Journal of Economics , year =

  36. [36]

    The RAND Journal of Economics , year =

    Klette, Tor and De Meza, David , title =. The RAND Journal of Economics , year =

  37. [37]

    , title =

    Hvide, Hans K. , title =. Journal of Labor Economics , year =

  38. [38]

    and Kristiansen, Eirik G

    Hvide, Hans K. and Kristiansen, Eirik G. , title =. Games and Economic Behavior , year =

  39. [39]

    and Thakor, Anjan V

    Goel, Anand M. and Thakor, Anjan V. , title =. The Journal of Finance , year =

  40. [40]

    , title =

    Gilpatric, Scott M. , title =. Economic Inquiry , year =

  41. [41]

    and Strack, Philipp , title =

    Fang, Dawei and Noe, Thomas H. and Strack, Philipp , title =. Journal of Political Economy , year =

  42. [42]

    Basak, Suleyman and Makarov, Dmitry , title =

  43. [43]

    Strack, Philipp , title =

  44. [44]

    Journal of Political Economy , year =

    Urgun, Can and Yariv, Leeat , title =. Journal of Political Economy , year =

  45. [45]

    Journal of Political Economy , year =

    Cetemen, Doruk and Urgun, Can and Yariv, Leeat , title =. Journal of Political Economy , year =

  46. [46]

    Econometrica , year =

    Jovanovic, Boyan and Rob, Rafael , title =. Econometrica , year =

  47. [47]

    American Economic Review , year =

    Callander, Steven , title =. American Economic Review , year =

  48. [48]

    American Political Science Review , year =

    Callander, Steven , title =. American Political Science Review , year =

  49. [49]

    American Economic Journal: Microeconomics , year =

    Callander, Steven and Matouschek, Niko , title =. American Economic Journal: Microeconomics , year =

  50. [50]

    Management Science , year =

    Callander, Steven and Matouschek, Niko , title =. Management Science , year =

  51. [51]

    and Matouschek, Niko , title =

    Callander, Steven and Lambert, Nicolas S. and Matouschek, Niko , title =. American Economic Journal: Microeconomics , year =

  52. [52]

    Econometrica , year =

    Bardhi, Arjada , title =. Econometrica , year =

  53. [53]

    Annual Review of Economics , year =

    Bardhi, Arjada and Callander, Steven , title =. Annual Review of Economics , year =

  54. [54]

    , title =

    Robson, Arthur J. , title =. Econometrica , year =

  55. [55]

    Games and Economic Behavior , year =

    Hopkins, Ed , title =. Games and Economic Behavior , year =

  56. [56]

    Annals of Finance , year =

    Whitmeyer, Mark , title =. Annals of Finance , year =

  57. [57]

    Mathematical Finance , year =

    Lacker, Daniel and Zariphopoulou, Thaleia , title =. Mathematical Finance , year =

  58. [58]

    The Quarterly Journal of Economics , year =

    Chevalier, Judith and Ellison, Glenn , title =. The Quarterly Journal of Economics , year =

  59. [59]

    and Goetzmann, William N

    Brown, Stephen J. and Goetzmann, William N. and Park, James , title =. The Journal of Finance , year =

  60. [60]

    American Economic Review , year =

    Camerer, Colin and Lovallo, Dan , title =. American Economic Review , year =

  61. [61]

    The Economic Journal , year =

    de Meza, David and Southey, Clive , title =. The Economic Journal , year =

  62. [62]

    and Welch, Ivo , title =

    Bernardo, Antonio E. and Welch, Ivo , title =. Journal of Economics & Management Strategy , year =

  63. [63]

    , title =

    Puri, Manju and Robinson, David T. , title =. Journal of Financial Economics , year =

  64. [64]

    The Review of Financial Studies , year =

    Landier, Augustin and Thesmar, David , title =. The Review of Financial Studies , year =

  65. [65]

    Self-Confidence and Personal Motivation , journal =

    B. Self-Confidence and Personal Motivation , journal =. 2002 , volume =

    2002

  66. [66]

    and Parker, Jonathan A

    Brunnermeier, Markus K. and Parker, Jonathan A. , title =. American Economic Review , year =

  67. [67]

    Economics Letters , year =

    Arabsheibani, Gholamreza and de Meza, David and Maloney, John and Pearson, Bernard , title =. Economics Letters , year =

  68. [68]

    Journal of Economic Psychology , year =

    Koellinger, Philipp and Minniti, Maria and Schade, Christian , title =. Journal of Economic Psychology , year =

  69. [69]

    Reza , title =

    Dawson, Christopher and de Meza, David and Henley, Andrew and Arabsheibani, G. Reza , title =. Journal of Economics & Management Strategy , year =

  70. [70]

    2003 , volume =

    The Return to Independent Invention: Evidence of Unrealistic Optimism, Risk Seeking or Skewness Loving? , journal =. 2003 , volume =

    2003

  71. [71]

    2014 , volume =

    Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics , journal =. 2014 , volume =

    2014

  72. [72]

    Management Science , year =

    Koudstaal, Martin and Sloof, Randolph and van Praag, Mirjam , title =. Management Science , year =

  73. [73]

    , title =

    Hamilton, Barton H. , title =. Journal of Political Economy , year =

  74. [74]

    and Vissing-J

    Moskowitz, Tobias J. and Vissing-J. The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle? , journal =. 2002 , volume =

    2002

  75. [75]

    and Nanda, Ramana and Rhodes-Kropf, Matthew , title =

    Kerr, William R. and Nanda, Ramana and Rhodes-Kropf, Matthew , title =. Journal of Economic Perspectives , year =

  76. [76]

    The Review of Financial Studies , year =

    Manso, Gustavo , title =. The Review of Financial Studies , year =

  77. [77]

    The Quarterly Journal of Economics , year =

    Levine, Ross and Rubinstein, Yona , title =. The Quarterly Journal of Economics , year =

  78. [78]

    and Jovanovic, Boyan , title =

    Evans, David S. and Jovanovic, Boyan , title =. Journal of Political Economy , year =

  79. [79]

    Review of Economic Dynamics , year =

    Quadrini, Vincenzo , title =. Review of Economic Dynamics , year =

  80. [80]

    Journal of Political Economy , year =

    Hurst, Erik and Lusardi, Annamaria , title =. Journal of Political Economy , year =

Showing first 80 references.