Overconfidence In Judgments Research Articles

High Stakes Overconfidence

Cognitive heuristics simplify decisions, even if they introduce biases. This can be an efficient tradeoff when the costs of bias are low, but may be problematic when the stakes are high. Study 1 (N = 118 contestants) examines the confidence of contestants on a game show, the Million Dollar Money Drop. The results show that, even in the presence of substantial incentives, contestants are more confident than they are accurate. Study 2 (N = 1567 MBA students) analyzes course examinations and finds again that test-takers are more confident than accurate. Study 3 (N = 226 Amazon Mechanical Turk Workers) demonstrates that these results are robust to variations in payoff schemes. These findings attest to the durability of overconfidence in judgment, even when stakes are high.

The bright side of the COVID-19 pandemic: Public coughing weakens the overconfidence bias in non-health domains

The COVID-19 pandemic is a serious threat that produces harm to people around the globe. Prior work has almost exclusively focused on deconstructive consequences of the novel coronavirus, the present research reveals a bright side of the coronavirus outbreak: reduce the overconfidence bias in non-health domains. In Experiment 1, students passed by a trained confederate who was coughing loudly or not and completed a peer-comparison problem measuring their overconfidence bias. The results showed that participants, who were exposed to a salient health threat, displayed a lower level of overconfidence than did participants in the control condition. Experiment 2 recapitulated the effects of public coughing on overconfidence by using a non-student sample and an alternative measure of overconfidence. Across two field experiments, we replicated prior findings regarding sex differences for the overconfidence bias. Taken together, our research suggests that whereas the COVID-19 pandemic has undoubtedly ravaged nations and economies, the unprecedented crisis offers an opportunity for individuals to counteract their overconfidence in judgment and decision-making.

"You know nothing, John Doe" – Judgmental overconfidence in lay climate knowledge

The 1.5° target outlined in the Paris agreement requires immediate and fundamental climate action; the lack of climate knowledge, prevalent misconceptions and purported knowledge may be major barriers. Therefore, this study was carried out to analyze signs of judgmental overconfidence in lay climate knowledge using a quota sample of 499 Austrians. Results indicate that several misconceptions exist, e.g., regarding the role of the ozone hole or that water vapor is a greenhouse gas. Moreover, there is a clear indication of knowledge overconfidence: the respondents' confidence levels in their own answers are higher than the accuracy of the answers. This amount of miscalibration between confidence and accuracy increased as the difficulty of the question increased. Significant differences in the results can be found regarding sociodemographic aspects. In order to be effective, transformative policies need to take into account the potential confounding effects that knowledge overconfidence and misconceptions may have on the reception of these policies by the general public.

Improving Accuracy by Coherence Weighting of Direct and Ratio Probability Judgments

Human forecasts and other probabilistic judgments can be improved by elicitation and aggregation methods. Recent work on elicitation shows that deriving probability estimates from relative judgments (the ratio method) is advantageous, whereas other recent work on aggregation shows that it is beneficial to transform probabilities into coherent sets (coherentization) and to weight judges' assessments by their degree of coherence. We report an experiment that links these areas by examining the effect of coherentization and multiple forms of coherence weighting using direct and ratio elicitation methods on accuracy of probability judgments (both forecasts and events with known distributions). We found that coherentization invariably yields improvements to accuracy. Moreover, judges' levels of probabilistic coherence are related to their judgment accuracy. Therefore, coherence weighting can improve judgment accuracy, but the strength of the effect varies among elicitation and weighting methods. As well, the benefit of coherence weighting is stronger on “calibration” items that served as a basis for establishing the weights than for unrelated “test” items. Finally, echoing earlier research, we found overconfidence in judgment, and the degree of overconfidence was comparable between the two elicitation methods.

COGNITIVE SKILLS AND CONFIDENCE: INTERRELATIONS WITH OVERESTIMATION, OVERPLACEMENT AND OVERPRECISION

ABSTRACTThis experimental study measures the three major types of judgmental overconfidence in a within‐subjects design. Performance‐based overestimation and overplacement are elicited in a Raven Progressive Matrices test for general intelligence. Calibration‐based overprecision is evaluated in a forecasting by confidence intervals task. This study takes a closer look at the interrelations of these different types. Moreover, as the main focus, it considers the effect of cognitive abilities on overconfidence. These are quantified in a cognitive reflection test. I find that cognitive skills are substantially interrelated with subjects’ confidence levels. Although overconfidence in absolute terms (overestimation) is not affected by cognitive abilities, the effect on overconfidence in relative terms (overplacement) is positive and significant. Overprecision, the calibration‐based type of overconfidence, is found to be significantly affected by cognitive capacity as well. Interval forecasts of cognitively more able subjects were much better calibrated than those of their peers who displayed substantial overconfidence in the precision of their forecasts.

Judgmental overconfidence and trading activity

We investigate the theoretically proposed link between judgmental overconfidence and trading activity. In addition to applying classical measures of miscalibration, we introduce a measure to capture misperception of signal reliability, which is the relevant bias in the theoretical overconfidence literature. We relate the obtained overconfidence measures to trading activity in call and continuous experimental asset markets. Our results confirm prior findings that classical miscalibration measures are not related to trading activity. Misperception of signal reliability is positively related to trading volume in the continuous market for one of two treatments. In the other one, no relation is found except that highly overconfident subjects trade less. In addition, we find that men trade more than women at high levels of risk aversion, but the gender trading gap vanishes as risk aversion lessens. The reason is that the trading activity of women seems to be more sensitive to risk attitudes than that of men.

How do judgmental overconfidence and overoptimism shape innovative activity?

Recent field evidence suggests a positive link between overconfidence and innovative activities. In this paper we argue that the connection between overconfidence and innovation is more complex than the previous literature suggests. In particular, we show theoretically and experimentally that different forms of overconfidence may have opposing effects on innovative activity. While overoptimism is positively associated with innovation, judgmental overconfidence is negatively linked to innovation. Our results indicate that future research is well advised to take into account that the relationship between innovation and overconfidence may crucially depend on what type of overconfidence is most prevalent in a particular context.

A Behavioral Demonstration of Overconfidence in Judgment

Overprecision—an excessive confidence that one knows the truth—is both the most durable and the least understood form of overconfidence. This article outlines an approach to the study of overprecision that avoids some of the methodological problems of other approaches and better reflects the way uncertainty affects choices in everyday life. We measured the precision in judgment implied by people’s tendency to adjust their point estimates of an uncertain quantity in response to the costs of overestimating or underestimating the correct answer. The results revealed robust overprecision. People adjusted their estimates less than they should have given their actual knowledge, and this effect was driven by their subjective confidence.

How Do Judgmental Overconfidence and Overoptimism Shape Innovative Activity?

Recent field evidence suggests a positive link between overconfidence and innovative activities. In this paper we argue that the connection between overconfidence and innovation is more complex than the previous literature suggests. In particular, we show theoretically and experimentally that different forms of overconfidence may have opposing effects on innovative activity. While overoptimism is positively associated with innovation, judgmental overconfidence is negatively linked to innovation. Our results indicate that future research is well advised to take into account that the relationship between innovation and overconfidence may crucially depend on what type of overconfidence is most prevalent in a particular context.

How overconfidence influences entrepreneurship

The only thing certain in economic life is that most of it is conducted into an uncertain environment; that raises a question though: what makes individuals pursue entrepreneurship which engages too much risk for an unsure, or too little, return? Research has shown that people tend to be optimistic when a decision is made under uncertainty (Taylor and Brown, Psychological Bulletin, 103:193–210, 1988) and exhibit overconfidence in judgment (DeBondt and Thaler 1995). Overconfident individuals tend to overestimate their relative ability (Svenson, Acta Psychologica 47:143–148, 1981); therefore, their perception about their actions, probabilistically, appears to them to be safer than that of others who exhibit no overconfidence. A sample of 2,994 entrepreneurs provides us with interesting findings (Cooper et al., Journal of Business Venturing 3:97–108, 1988): 81% consider their chances of success to be at least 70%, and 33% believe their chances of success to reach a probability of 100%. In reality, about 75% of new businesses no longer exist after 5 years. Is it that entrepreneurs are incapable of seeing the risk or/and measure it, or is it that they consciously perceive a different dimension of risk involved in their actions? A more recent study (Wu and Knott, Management Science 52:1315–1330, 2006) showed, in general, that entrepreneurs are more cautious than most of us would think or believe, and the belief that entrepreneurs have bigger tolerance for risk is rather unsupported according to their findings. Although there are some cases where entrepreneurs appear to be more risk averse than average, still it does not prevent them to bear risk. Such finding sounds controversial, but in reality it is not. Entrepreneurs seem to set different dimensions for uncertainty; thus, the oxymoron suggested above actually justifies their actions. Entrepreneurs believe that uncertainty has two dimensions: the market uncertainty and the uncertainty regarding ability. Similar to the majority of people, entrepreneurs detest the market risk but, on the other hand, they much appreciate their own abilities(overconfidence) that compensate for their dislike of risk. The purpose of this paper is to highlight the impact of overconfidence in entrepreneurial behavior.

How Do Judgmental Overconfidence and Overoptimism Shape Innovative Activity?

Recent field evidence suggests a positive link between overconfidence and innovative activities. In this paper we argue that the connection between overconfidence and innovation is more complex than the previous literature suggests. In particular, we show theoretically and experimentally that different forms of overconfidence may have opposing effects on innovative activity. While overoptimism leads to an innovation enhancing effect, judgmental overconfidence inhibits innovation. Our results indicate that future research is well advised to take into account that the relationship between innovation and overconfidence may crucially depend on what type of overconfidence is most prevalent in a particular context.

Judgmental overconfidence: Three measures, one bias?

Overconfidence is used to explain various instances of detrimental decision making. In behavioral economic and finance models, it is usually captured by misperceiving the reliability of signals and results in overweighting private information. Empirical tests of these models often fail to find evidence for the predicted effects of overconfidence. These studies assume, however, that a specific type of overconfidence, i.e. “miscalibration,” captures the underlying trait. We challenge this assumption and borrow the psychological methodology of single-cue probability learning to obtain a direct measure for misperceiving signal reliability. Our findings indicate that the perception of signal precision and measures of miscalibration are unrelated. We thus conclude that in order to test the theoretical predictions of the overconfidence literature in economics and finance, one cannot rely on the well-established miscalibration bias.

Do positive illusions predict overconfidence in judgment? A test using interval production and probability evaluation measures of miscalibration

AbstractWe address the question as to whether judgmental overconfidence, as assessed by probability miscalibration, is related to positive illusions about the self. We first demonstrate that judgmental overconfidence measured with interval production procedures can be considered a trait, due to correlations observed in miscalibration scores in two sets of general‐knowledge questions of varying difficulty administered at different times. In addition, the hard‐easy effect operated in different ways on overprecision and self‐placement of one's performance relative to others: The more difficult the calibration task, the greater the over precision but the greater the under placement of one's performance. Finally, there was no evidence that miscalibration was related to dispositional optimism and self‐efficacy. A second study extended these results by including further measures of disposition to experience positive illusions such as unrealistic optimism, a general tendency to consider oneself “better‐than‐average,” and two indexes of dispositional perception of control. The positive illusion measures showed considerable inter‐correlations, but did not correlate with miscalibration on the interval production task, and correlated negatively with optimism concerning societal risks. A final study replicated this pattern of findings, but showed that disposition to positive illusions did predict miscalibration on the same questions measured with a probability evaluation technique. Our research demonstrates that “overconfidence” is not a unitary construct, but a series of overlapping ones. Copyright © 2010 John Wiley & Sons, Ltd.

Delusions are associated with low self-reflectiveness in first-episode psychosis

Previous work on chronic psychosis patients has suggested that low self-reflectiveness and overconfidence in judgments may be associated with delusions. In the present study we evaluated whether this extends to a first-episode psychosis sample. Thirteen actively delusional and 53 non-delusional participants with a first-episode psychosis completed the Beck Cognitive Insight Scale. Relative to non-delusional participants, delusional participants endorsed greater self-reflectiveness, though their confidence in their judgments was the same as non-delusional participants. These results suggest that the capacity to self-reflect and refrain from overconfidence may interact with delusions differentially across multiple phases of psychosis. The cognitive system involved in self-reflectiveness may be important for delusional thinking during a first-episode psychosis.

The role of short-term memory capacity and task experience for overconfidence in judgment under uncertainty.

Research with general knowledge items demonstrates extreme overconfidence when people estimate confidence intervals for unknown quantities, but close to zero overconfidence when the same intervals are assessed by probability judgment. In 3 experiments, the authors investigated if the overconfidence specific to confidence intervals derives from limited task experience or from short-term memory limitations. As predicted by the naive sampling model (P. Juslin, A. Winman, & P. Hansson, 2007), overconfidence with probability judgment is rapidly reduced by additional task experience, whereas overconfidence with intuitive confidence intervals is minimally affected even by extensive task experience. In contrast to the minor bias with probability judgment, the extreme overconfidence bias with intuitive confidence intervals is correlated with short-term memory capacity. The proposed interpretation is that increased task experience is not sufficient to cure the overconfidence with confidence intervals because it stems from short-term memory limitations.

Cognitive insight and acute psychosis in schizophrenia

Cognitive insight is a new concept. There are very few data regarding the relationship between cognitive insight and positive symptoms. The goal of the present study was to investigate the impact of acute psychosis (delusions and hallucinations) on overconfidence in judgments and self-reflectiveness of patients with schizophrenia. The Beck Cognitive Insight Scale was used to compare the cognitive insight of schizophrenia patients with (n = 93) and without (n = 45) current psychotic symptoms. Clinical symptoms and clinical insight of the patients were also assessed. The present findings suggest that both overconfidence in judgments and impaired self-reflectiveness are associated with acute psychosis. Only diminished self-reflectiveness seem to be improved following hospitalization. Although overconfidence of schizophrenia patients in their judgments was more severe in schizophrenia patients with psychotic symptoms, self-certainty of schizophrenia patients may be a relatively persistent characteristic that is also present after recovery of psychosis. Studies with larger samples involving follow up for longer periods will be valuable to understand the nature of the relationship between cognitive insight and clinical symptoms of schizophrenia.

Judgemental Overconfidence, Self-Monitoring, and Trading Performance in an Experimental Financial Market

We measure the degree of overconfidence in judgment (in the form of miscalibration, i.e., the tendency to overestimate the precision of one’s information) and self-monitoring (a form of attentiveness to social cues) of 245 participants and also observe their behaviour in an experimental financial market under asymmetric information. Miscalibrated traders, underestimating the conditional uncertainty about the asset value, are expected to be especially vulnerable to the winner’s curse. High self-monitors are expected to behave strategically and achieve superior results. Our empirical results show that miscalibration reduces and self-monitoring enhances trading performance. The effect of the psychological variables is strong for men but non-existent for women.

Facing faces: studies on the cognitive aspects of physiognomy.

Physiognomy, the art of reading personality traits from faces, dates back to ancient Greece, and is still very popular. The present studies examine several aspects and consequences of the process of reading traits from faces. Using faces with neutral expressions, it is demonstrated that personality information conveyed in faces changes the interpretation of verbal information. Moreover, it is shown that physiognomic information has a consistent effect on decisions, and creates overconfidence in judgments. It is argued, however, that the process of "reading from faces" is just one side of the coin, the other side of which is "reading into faces." Consistent with the latter, information about personality changes the perception of facial features and, accordingly, the perceived similarity between faces. The implications of both processes and questions regarding their automaticity are discussed.

The False Consensus Effect and Overconfidence: Flaws in Judgment or Flaws in How We Study Judgment?

Thefalse consensus effectand theoverconfidence in judgmenteffect are often referred to as established “facts” of psychology. At present, the empirical support for these effects is inadequate and logically flawed. We argue that, absent other information, using one's own response to a situation as an observation of size 1 could be an effective use of data and could lead to anincreasein the accuracy of predicting others’ behavior. In an empirical examination of such use, we find a robustpositivecorrelation between the degree to which people believe that a majority of others are like them and their accuracy in predicting those others’ responses, whether this correlation is evaluated within items across people, across items within people, or across items across people. In addition, we show that the finding of overconfidence in judgment follows analytically from the functional relationship used to demonstrate it, a “finding” that is easily reversed by considering the inverse relationship. Specifically, we argue that regression effects account for the evidence cited in support of overconfidence. While not definitive, our empirical findings call into the question the acceptance of these two effects—as commonly defined—as facts.

Effects of alcohol intoxication on metamemory and on retrieval from long-term memory.

In a balanced-placebo design, people expected either an alcohol drink or placebo drink and consumed either alcohol (1 ml/kg) or placebo. Shortly thereafter, each person attempted to recall the answers to general-information questions (e.g., "What is the capital of Chile?"), made confidence judgments about the accuracy of recall, made feeling-of-knowing judgments on all nonrecalled items, and received a recognition test. Unanticipated outcomes included: Alcohol intoxication significantly hindered recall from long-term memory, contrary to previous conclusions that alcohol does not affect retrieval; people's expectancy of alcohol had no significant effect on memory or metamemory performance, contrary to its established effects on other kinds of performance; and alcohol intoxication produced no significant overconfidence in judgments about recall or in feeling-of-knowing judgments, contrary to the overconfidence produced in other kinds of judgments such as an intoxicated person's assessment of his driving ability. This last outcome implies that alcohol intoxication does not produce a general lowering of the threshold for confidence but rather has effects that are situation specific.