Examining the trade‐off between confidence and optimism in future forecasts

Olga Stavrova,Anthony M Evans

doi:10.1002/bdm.2087

Abstract

AbstractConfident business forecasters are seen as more credible and competent (“confidence heuristic”). We explored a boundary condition of this effect by examining how individuals react to the trade‐off between confidence and optimism. Using hypothetical scenarios, we examined this trade‐off from the perspectives of judges (i.e., business owners who hired analysts to make sales predictions) and forecasters (i.e., the analysts hired to make predictions). Participants were assigned to the role of either judges or forecasters and were asked to rate 2 potential forecasts. In the “no trade‐off” condition, the 2 forecasts were aligned in optimism and confidence (the more confident forecast was also more optimistic); in the “trade‐off” condition, the more confident forecast was less optimistic. In Experiment 1, judges were more likely to positively evaluate confident forecasters when confident forecasters were the more (vs. less) optimistic ones. Experiment 2 demonstrated that forecasters were aware of judges' preferences for optimism and strategically relied on methods that resulted in more optimistic (but less reliable) predictions. Experiment 3 directly compared the perspectives of judges and forecasters, revealing that forecasters overestimated judges' preferences for optimism over confidence. The present studies show that forecasters and judges have different views of the trade‐off between confidence and optimism and that forecasters may unnecessarily sacrifice accuracy for optimism.

Highlights

When making important decisions, people often rely on advisors for help with forecasting, that is, estimating the probabilities of different future outcomes (Bonaccio & Dalal, 2006; Hadar & Fischer, 2008)
We explored a boundary condition of this effect by examining how individuals react to the trade‐off between confidence and optimism
We examined how judges evaluate forecasters: When there is a trade‐off between confidence and optimism, do judges always prefer a more confident forecaster? Second, we asked if forecasters sacrifice confidence for optimism

Summary

Introduction

People often rely on advisors for help with forecasting, that is, estimating the probabilities of different future outcomes (Bonaccio & Dalal, 2006; Hadar & Fischer, 2008). Forecasts (and how people respond to them) play an important role in economic and organizational decision making (Silver, 2012; Tetlock, Mellers, Rohrbaugh, & Chen, 2014). Advice‐taking research has shown that advisor confidence is a primary factor in perceptions of advisor credibility (Price & Stone, 2004; Sniezek & Van Swol, 2001; Van Swol & Sniezek, 2005). Confidence may serve as a cue to the advisor's expertise: People might trust confident advisors more because they assume that confidence is a direct consequence of expertise—the phenomenon labeled “confidence heuristic” (Price & Stone, 2004).

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