The Bad Thing About Good Advice: Understanding When and How Advice Exacerbates Overconfidence
Management Science, 2020
69 Pages Posted: 9 Dec 2020
Date Written: October 6, 2020
Much research on advice taking examines how people revise point estimates given input from others. This work has established that people often egocentrically discount advice. If they were to place more weight on advice, their point estimates would be more accurate. Yet the focus on point estimates and accuracy has resulted in a narrow conception of what it means to heed advice. We distinguish between revisions of point estimates and revisions of attendant probability distributions. Point estimates represent a single best guess; distributions represent the probabilities that people assign to all possible answers. A more complete picture of advice taking is provided by considering revisions of distributions, which reflect changes in both confidence and best guesses. We capture this using a new measure of advice utilization, the Influence of Advice. We observe that when input from a high-quality advisor largely agrees with a person’s initial opinion, it engenders little change in one’s point estimate, and hence little change in accuracy, yet significantly increases confidence. This pattern suggests more advice taking than generally suspected. However, it is not necessarily beneficial. Because people are typically overconfident to begin with, receiving advice that agrees with their initial opinion can exacerbate overconfidence. In several experiments, we manipulate advisor quality and measure the extent to which advice agrees with a person’s initial opinion. The results allow us to pinpoint circumstances in which heeding advice is beneficial, improving accuracy or reducing overconfidence, as well as circumstances in which it is harmful, hurting accuracy or exacerbating overconfidence.
Keywords: advice taking, accuracy, overconfidence, judgment and decision making
JEL Classification: D8, M00
Suggested Citation: Suggested Citation