What is the The hubris hypothesis ?

When bidding for target firms, the manager tend to over-estimate the value of the target  they bid too high (hubris). Too high means compared to rational expectations (i.e. no hubris). With rational expectations and randomly distributed payoffs, all bids will be close to the average bid which is equal to the true value of the firm that is for sale With hubris the price paid for the acquired company is above the true value because it goes to the highest bidder  hence too high.