Long-Term Bias and Overconfident CEOs: What directors should know about keeping the top dog's cockiness in check.

According to myriad commentators, the culprit responsible for an array of problems in today's capital markets is "short-termism" --the idea that companies and boards are increasingly sacrificing long-term value creation in exchange for short-term profits, largely prodded by pressure from activist investors.

A variety of institutional practices such as quarterly reporting and earnings guidance, the story goes, serve mainly to exacerbate these pressures. Much ink has been spilled on strategies for how board members (possibly with an assist from government regulators) can resist these influences and focus on the long term.

But could the pendulum swing too far the other way?

In a recent study, Eric Talley of Columbia Law School and Michal Barzuza of the University of Virginia School of Law School draw on the field of behavioral...