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.

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