When It's Right to be "Wrong": The Effects of Overconfidence and Planning on Product Performance in a Dynamic Environment
AbstractSome authors emphasize overconfidence may benefit managers by increasing decision-making efficiency, whereas others argue it results in serious errors. This study helps resolve the debate by examining the relationship between overconfidence and product performance, as well as testing whether planning might mediate the link. The study sampled 52 small computer companies that had decided to introduce a product. It examined the manager's overconfidence and planning when the product was launched and measured the product's performance 18 months later. We found that overconfidence decreased planning, planning decreased performance, and, as hypothesized, planning mediated the relationship between the two other variables. By examining the meditating role of planning, we were able to better identify the causal relationships and clarify the effects of overconfidence.
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