The Influence of Knowledge on Overconfidence: Consequences for Management and Project Planning

Publication Type

Journal contribution (peer reviewed)

Authors

Fabricius, G./Büttgen, M.

Year of publication

2013

Published in

International Journal of Business Management

Editor

Canadian Center of Science and Education

Band/Volume

vol. 8/Nr. 11

ISBN / ISSN / eISSN

1833-3850/1833-8119

DOI

10.5539/ijbm.v8n11p1

Page (from - to)

1 - 12

Many challenging decisions are made under uncertainty, forcing managers to judge situations without in-depth knowledge of details or potential future outcomes. Earlier research shows that people tend to be overconfident about the accuracy of their judgments and comparatively optimistic about their future prospects, which means that people believe that they are more likely than others to experience positive events and less likely to suffer negative ones. Managers are likely to make decisions based on overconfident judgments and overly positive
assessments of potential outcomes. In this study, we show that overconfidence is higher when little task-specific knowledge is available, which increases the likelihood of making incorrect decisions when faced with low knowledge. In a second step we investigate individual differences in overconfidence, whereby a cluster analysis reveals different behavioral patterns among participants (117 students) with low task-specific knowledge. Two main groups emerge among those with low task-specific knowledge. People characterized by low comparative optimism acknowledge their lack of knowledge and consequently exhibit little overconfidence. The vast majority of participants with low task-specific knowledge, However, display strong overconfidence in the accuracy of their judgments. We propose that self-enhancement motives are a reason for this increased overconfidence. Decision makers must be aware of overconfident judgments and also consider individual differences in overconfidence in order to make the right decisions.