The illusion of knowledge: When more information reduces accuracy and increases confidence

The ultimate bottom line in every manger’s job is to succeed in helping an organization to achieve high performance by using all of the human and material resources. If productivity in the form of high levels of performance effectiveness and efficiency is a measure of organizational success, managers are largely responsible for ensuring its achievement. It is their job to successfully mobilize technology and talent by creating work environments within which others work hard and perform to the best of their abilities

Managers are constantly called upon to make decisions in order to solve problems. Decision making and problem solving are ongoing processes of evaluating situations or problems, considering alternatives, making choices, and following them up with the necessary actions. Sometimes the decision-making process is extremely short, and mental reflection is essentially instantaneous. So all of the mangers must have the capabilities to recognize performance problems and opportunities in daily events. Make good decisions and take appropriate action. They do this through the process of management- i.e planning, organizing, leading and controlling the use of resources to accomplish performance goals.

In this article, we discuss that more knowledge can reduce the accuracy of prediction of uncertain outcomes and simultaneously increase confidence in prediction. Here writer focus on the prediction of sports outcomes for two reasons, first these are uncertain events about which people have general knowledge and second it is possible to randomly sample these events. As critics of the heuristics-and-biases approach have pointed out, demonstration that a bias leads to suboptimal performance require random sampling of events from the domain of prediction (Gigerenzer, Hoffrage, & Kleinbolting,1991) otherwise, suboptimal performance can be attributed to a biased sample of events. Here writer saying that the accuracy of judgments is assessed against an external criterion-that real outcome of the predicted events-and one can find task domains where inconsistent judgments are as accurate as consistent judgments derived from rational models (Gigerenzer&Goldstein, 1996;Gigerrenzer et al., 1999). That is, biases judgments are not necessarily less accurate than unbiased judgment. As noted above, a fair test of accuracy of judgments requires random sampling of events in naturalistic environments. Here In all experiment, author randomly sampled National Basketball association (NBA) games. In experiment 1, author demonstrates that knowledge of team names increases the confidence in the predictions of basketball fans. In experiment 2, author demonstrate that this knowledge reduces the accuracy of prediction of both fans and non-fans despite the fan’ beliefs that this knowledge improves their predictions. In experiment 3, author show that the familiarity of the team systematically biases predictions. Finally experiment 4, demonstrates that, when betting on their own predictions (with their own potential winning at shake), basketball fans earn less when presented with the team names in addition to the statistical information, even in a setting when feedback about judgments is presented.

After author report the basic phenomena in the experiments, they present analyses across all experiments addressing the underlying judgmental mechanisms. In the case of confidence, we argue that knowledge of team names cues specific knowledge about the teams and that this knowledge inflates confidence in predictions. This claim is supported by: (a) the finding that knowledge of team names increases confidence of only those participants knowledgeable about basketball and (b) correlation and regression analysis demonstrating that frequency of watching basketball on television is positively correlated with confidence in predictions, but only when the team names are provided.

In the case of accuracy, author makes two broad claims about the observed more-is-less effect. First, they argue that knowledge of team names reduces the weight of statistical cues on prediction and that this reduces the overall accuracy of both fans and non-fans. Because each participant predicted a number of games, they would compute the influence of statistical information on their predictions. They show that this influence is significantly reduced when team names are provided. They also show that the decreased reliance on statistical information in the names condition mediates the effect of team names on accuracy. The second claim is that knowledge of team names does not simply introduce random noise in predictions but introduces systematic biases. They address one such bias, namely predicting that more familiar teams are more likely to win even when the statistical odds clearly favored the less familiar teams.

    From this article we can say that in certain situation, people may be better off consulting fewer pieces of information when making decisions. Specifically, when an uncertain event can be statistically characterized, it would be best not to consult any “event-specific” information. However, this runs against the intuitions of people knowledgeable about the particular domain under consideration. From above case study, the majority of basketball fans believed that knowledge of the names would improve their predictions. Not surprisingly, when given these names, fans became more confident. This constellation of factors-additional information is believed to improve the decision but its effect is to reduce accuracy-produces “the illusion of knowledge” effect. Because this effect is based on the powerful intuition that more knowledge is beneficial for decision, it may be very difficult to dissuade people from using ‘event- specific’ information. Despite the lack of evidence for this phenomenon, it is nearly impossible to convince basketball fans9unless they are dedicated students of judgment and decision-making) of its unreality. The illusion of knowledge is related to at least other three phenomena: the hindsight bias (Fishhoff, 1975), the curse of knowledge (Aamerer,Loewenstein, &Weber, 1989) and the illusion of transparency(Gilovich, savitsky, &Medvec,1989). In fact, participants felt competent when evaluating stocks with more familiar names. People also exhibit a “home bias”(allocating more funds to domestic vs. foreign assetd) and asset name familiarity bias(allocating more funds to stocks with grater name recognition). The biases in all of the cases, from the prediction of basket ball games to the allocation of assets, can be traced to illusions of knowledge.

    Thus at the contrast, we can say that decision making is a criteria with out specific knowledge, vision, statistical analysis and proper judgment a manger can’t give a proper direction, guidelines and the intuitions cant get its specific achievement so, The illusion of knowledge: When more information reduces accuracy and increases confidence is true.

References

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Camerer, C., Loewenstein, G., & Weber, M. (1989). The curse of knowledge in economic settings: an experimental analysis. Journal of Political Economy, 97, 1232–1254.

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