Do positive illusions predict overconfidence in judgment? A test using interval production and probability evaluation measures of miscalibration

Media intervention program for reducing unrealistic optimism bias: The link between unrealistic optimism, well-being, and health

Unrealistic optimism is the tendency to perceive oneself as safer than others in situations that equally threaten everybody. By reducing fear, this bias boosts one's well-being; however, it is also a deterrent to one's health. Three experiments were run in a mixed-design on 1831 participants to eliminate unrealistic optimism (measured by two items-probability of COVID-19 infection for oneself and for others; within-subjects) toward the probability of COVID-19 infection via articles/videos. A between-subject factor was created by manipulation. Ostensibly, daily newspaper articles describing other people diligently following medical recommendations (experiment 1) and videos showing people who did not follow these recommendations (experiment 2) reduced unrealistic optimism. The third experiment, which included both articles and videos, replicated these results. These results can be applied to strategies for written and video communications that can be used by governments and public health agencies as best practices concerning not only COVID-19 but also any subsequent public health threat while promoting proactive, optimal, and healthy functioning of the individual.

Managerial Overconfidence, Corporate Social Responsibility Activities, and Financial Constraints

Managerial overconfidence refers to managers’ cognitive bias, according to which they demonstrate unwarranted belief in their own judgments and capabilities. This study provides a new measurement of CEO overconfidence through textual analysis of management discussion and analysis (MD&A) in 10-K documents by making use of the US Securities and Exchange Commission (SEC) EDGAR database. Overconfidence was obtained from “optimism” using the Diction program. From a sample of 19,367 US firms from 1994 to 2016, we found that CEO overconfidence was negatively related to corporate social responsibility (CSR) activities. Since overconfident CEOs are likely to consider CSR activities less important than their own ability, they seem to reduce CSR activities. Also, CSR activities initiated by overconfident CEOs were negatively related to firms’ long-term performance. However, CSR activities led to positive long-term performance in firms that were financially constrained. Our findings show that CSR activities undertaken as a result of CEO overconfidence by financially unconstrained firms could be harmful to shareholder value in the long term.

Community resilience and decision theory challenges for catastrophic events

Extreme and catastrophic events pose challenges for normative models of risk management decision making. They invite development of new methods and principles to complement existing normative decision and risk analysis. Because such events are rare, it is difficult to learn about them from experience. They can prompt both too little concern before the fact, and too much after. Emotionally charged and vivid outcomes promote probability neglect and distort risk perceptions. Aversion to acting on uncertain probabilities saps precautionary action; moral hazard distorts incentives to take care; imperfect learning and social adaptation (e.g., herd-following, group-think) complicate forecasting and coordination of individual behaviors and undermine prediction, preparation, and insurance of catastrophic events. Such difficulties raise substantial challenges for normative decision theories prescribing how catastrophe risks should be managed. This article summarizes challenges for catastrophic hazards with uncertain or unpredictable frequencies and severities, hard-to-envision and incompletely described decision alternatives and consequences, and individual responses that influence each other. Conceptual models and examples clarify where and why new methods are needed to complement traditional normative decision theories for individuals and groups. For example, prospective and retrospective preferences for risk management alternatives may conflict; procedures for combining individual beliefs or preferences can produce collective decisions that no one favors; and individual choices or behaviors in preparing for possible disasters may have no equilibrium. Recent ideas for building "disaster-resilient" communities can complement traditional normative decision theories, helping to meet the practical need for better ways to manage risks of extreme and catastrophic events.