Examining the trade-off between confidence and optimism in future forecasts

Abstract

Confident business forecasters are seen as more credible and competent (“confidence heuristic”). We explored a boundary condition of this effect by examining how individuals react to the trade-off between confidence and optimism. Using hypothetical scenarios, we examined this trade-off from the perspectives of judges (i.e., business owners who hired analysts to make sales predictions) and forecasters (i.e., the analysts hired to make predictions). Participants were assigned to the role of either judges or forecasters and were asked to rate 2 potential forecasts. In the “no trade-off” condition, the 2 forecasts were aligned in optimism and confidence (the more confident forecast was also more optimistic); in the “trade-off” condition, the more confident forecast was less optimistic. In Experiment 1, judges were more likely to positively evaluate confident forecasters when confident forecasters were the more (vs. less) optimistic ones. Experiment 2 demonstrated that forecasters were aware of judges' preferences for optimism and strategically relied on methods that resulted in more optimistic (but less reliable) predictions. Experiment 3 directly compared the perspectives of judges and forecasters, revealing that forecasters overestimated judges' preferences for optimism over confidence. The present studies show that forecasters and judges have different views of the trade-off between confidence and optimism and that forecasters may unnecessarily sacrifice accuracy for optimism.