Abstract
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.
Highlights
The uncertainty surrounding decisions often forces managers to make assumptions about the current situation or predict future developments
Project management in particular is rife with examples of exceeded budgets and timelines where managers failed to plan adequately (Buehler, Griffin, & Ross, 1994; Keil & Robey, 1999; Lawrence & Scanlan, 2007): A survey of KPMG Canada concerned with failure in information technology (IT)-projects surveyed 1,450 public and private sector organizations and found that 92% of smaller projects with a planned completion time of under one year overran the schedule by more than 30% while this was the case for 86% of the larger projects (Whittaker, 1999)
This study investigates if overconfidence occurs more often among people who exhibit high comparative optimism, i.e., the belief that they are more likely than others to experience positive events and less likely to suffer negative ones
Summary
The uncertainty surrounding decisions often forces managers to make assumptions about the current situation or predict future developments. Project management in particular is rife with examples of exceeded budgets and timelines where managers failed to plan adequately (Buehler, Griffin, & Ross, 1994; Keil & Robey, 1999; Lawrence & Scanlan, 2007): A survey of KPMG Canada concerned with failure in IT-projects surveyed 1,450 public and private sector organizations and found that 92% of smaller projects with a planned completion time of under one year overran the schedule by more than 30% while this was the case for 86% of the larger projects (Whittaker, 1999) These inaccuracies in project planning indicate that several biases might reduce the reliability of estimates. In this study we examine the influence of task-specific knowledge and comparative optimism on overconfidence
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
