The Effect of Overconfidence and Underconfidence on Consumer Value

Abstract

Although the effect of knowledge miscalibration (i.e., the inaccuracy in subjective knowledge relative to objective knowledge) on consumer purchase decisions has been investigated, its effect in the usage stage of consumption is little understood. This paper examines the effect of knowledge miscalibration in terms of both overconfidence (i.e., when subjective knowledge is inflated) and underconfidence (i.e., when subjective knowledge is deflated) on the dimensions of consumer value (i.e., efficiency, excellence, play, and aesthetics). The paper makes the case that overconfidence and underconfidence should be treated separately as they trigger different consumption consequences. Several hypotheses are tested through two studies: a covariance-based study (Study 1) and an experimental study (Study 2). In Study 1, overconfidence and underconfidence are measured, while in Study 2 they are experimentally manipulated. Findings of both studies show that underconfidence negatively influences efficiency, excellence, and aesthetics, and overconfidence negatively influences play. Also, Study 1 finds a negative effect of underconfidence on play and Study 2 finds a negative effect of overconfidence on excellence and aesthetics. Findings reveal that knowledge miscalibration negatively impacts consumers' usage experiences. This implies that in designing product or service experiences suppliers benefit from ensuring that consumers achieve a reduced level of knowledge miscalibration.

Does underconfidence matter in short-term and long-term investment decisions? Evidence from an emerging market

“…Some people think that they know little than they really do because they ponder themselves to be inexpert in decision-making, such type of behavior is a reflection of underconfidence. An investor is considered as underconfident when her subjective knowledge is deflated (Razmdoost et al , 2015).…”

Not Whodunit But Whydunit: Story Characters’ Motivations Influence Audience Interest in Services

“…Past research defines knowledge calibration as the extent to which peoples’ confidence in their knowledge (their subjective knowledge) corresponds to their actual (objective) knowledge (Alba and Hutchinson 2000; Burson 2007; Kidwell, Hardesty, and Childers 2008). Knowledge miscalibration can take one of the two forms: overconfidence (when a person’s subjective knowledge is inflated relative to objective knowledge) and underconfidence (when a person’s subjective knowledge is deflated; Razmdoost, Dimitriu, and Macdonald 2015). People incur costs due to their miscalibration.…”

“…For example, an overconfident individual may purchase a high-end digital camera he mistakenly believes is matched with his own knowledge of camera use (Burson 2007). In general, consumers who are miscalibrated make worse purchase decisions, which may result in frustration and dissatisfaction (Razmdoost, Dimitriu, and Macdonald 2015).…”

Comparing the measures of consumer knowledge calibration

“…Alba and Hutchinson (2000) synthesised a large body of research in psychology examining knowledge calibration, outlined its importance to consumer research and called for further research. Responding to this call, several scholars have examined knowledge calibration and allied constructs (such as overconfidence and discrimination, a related construct discussed in the next section under calibration component of the Murphy decomposition of the Brier score), in consumer science (Boyle and Lathrop, 2009; Gershoff and Johar, 2006; Kidwell et al , 2008; Razmdoost et al , 2015; Pillai and Hofacker, 2007; Pillai et al , 2015). This body of work has recorded that: knowledge calibration facilitates the quality of food choices (Kidwell et al , 2008); involvement enhances knowledge calibration (Pillai and Hofacker, 2007); and learned helplessness can inhibit the beneficial effects of knowledge calibration on dietary choices (Hansen and Thomsen, 2013).…”