Both Buyer and Seller Should Beware of Overconfidence

April 15, 2013

Salespeople, doctors and government leaders rely on displays of confidence to help persuade others to follow their recommendations.  But a new study from professors at the University of California, Berkeley, and Georgetown University’s McDonough School of Business cautions that overconfidence can hurt credibility.

The study, “Cheap talk and credibility: The consequences of confidence and accuracy on advisor credibility and persuasiveness,” published in the journal Organizational Behavior and Human Decision Processes, recommends that advisors who suspect their advice might not be perfect should moderate their confidence. When super-confident advisors are found to be inaccurate, it says, their credibility takes a bigger hit than when more modest advisors are found to be errant.

Lead author Sunita Sah, an assistant professor of business ethics at Georgetown University, and UC Berkeley authors Don A. Moore, an associate professor of business, and Robert MacCoun, a professor of public policy and of law, suggest that consumers  value advisors for their accuracy, not their confidence.

“This does not mean focusing only on results, because we cannot reasonably expect our advisors to get it right every time. But we can insist that they be properly calibrated,” said Sah, the lead author.

The study seeks to explain the reasons for two dominant, but conflicting, perspectives found in existing research on confidence and credibility.

One camp contends that acting confident pays off, because people assume that confident advisors know what they are talking about -- even when performance data suggests otherwise.  In contrast, the other camp stresses that overconfidence backfires the moment people discover that the advisor has made any errors.  
The new findings help to reconcile the two viewpoints and forge new ground in the field.

In two different experiments, the researchers asked participants to estimate the physical weight of different people based on photographs consisting of only head and shoulder shots. Participants were randomized to receive advice from one of four different advisors and were told the advisors had seen a full-length photo of the person. The advisors varied as to whether they displayed high or low confidence and whether they were accurate or inaccurate. Participants had the opportunity to revise their estimates after learning their advisor’s recommendation. Some participants then received free feedback on whether their advisor had been accurate or not, while other participants had to pay to obtain this performance data. A final group of participants had no opportunity to get accuracy information on their advisor.

“If accuracy information is not available or is costly or effortful to obtain, people use confidence as a cue or proxy for accuracy,” write the researchers in the journal article. The researchers caution consumers not to blindly reward high confidence in their advisors but to take the effort to seek out performance data whenever possible.

Sunita Sah, (412) 880-8782, ss3250@georgetown.edu
Don A. Moore, (510) 642-1059, dmoore@haas.berkeley.edu
Robert MacCoun, (510) 642-7518, maccoun@berkeley.edu