When deciding creates overconfidence

Abstract

To the known causes of overconfidence in decisions and judgments, we reveal another source that derives from a bias during the act of decision making. While this bias, the predecisional distortion of information, is well studied, its impact on overconfidence is not. We demonstrate how the distortion of information creates overconfidence in those professionals often regarded as singularly overconfident, entrepreneurs. When these professionals use a sequence of relevant information to make an accept-reject decision about a business opportunity, a cycle of confidence-distortion-confidence builds unjustified confidence in the chosen action – and does so whether that action is to accept or reject the venture. Overconfidence is a well-recognized cause of flawed decision making. Our work demonstrates the paradoxical converse of this claim, that flawed decision making can be a cause of overconfidence.