Abstract: The traditional principalagent model does not fully consider the irrational behaviors and the effect of psychological factors of the principal and agent, nor resolves the double moral hazard problem such as the adverse selection. This paper introduced the overconfidence, the dismissal compensation and the principal’s dismissal liability into the principalagent model, redesigned the contract, analyzed the effect of overconfidence on the effort level, incentive coefficient, fixed compensation and the agency cost through mathematical deduction, and set up the double moral hazard prevention mechanism based on the agent’s overconfidence, which can also resolve the low incentive efficiency to encourage the agents to work hard for the principal’s interests.