The Bad Thing About Good Advice: Understanding When and How Advice Exacerbates Overconfidence

Management Science, 2020

69 Pages Posted: 9 Dec 2020

See all articles by Jack B. Soll

Jack B. Soll

Duke University - Management

Asa Palley

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies

Christina Rader

Colorado College - Department of Economics and Business

Date Written: October 6, 2020

Abstract

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

Soll, Jack B. and Palley, Asa and Rader, Christina, The Bad Thing About Good Advice: Understanding When and How Advice Exacerbates Overconfidence (October 6, 2020). Management Science, 2020, Available at SSRN: https://ssrn.com/abstract=3094176 or http://dx.doi.org/10.2139/ssrn.3094176

Jack B. Soll (Contact Author)

Duke University - Management ( email )

Box 90120
Durham, NC 27708-0120
United States
(919) 660-7858 (Phone)

Asa Palley

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies ( email )

Hodge Hall 4100
1275 E 10th St.
Bloomington, IN 47405
United States

Christina Rader

Colorado College - Department of Economics and Business ( email )

14 E Cache La Poudre Street
Colorado Springs, CO 80903
United States

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