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

Abstract

Intuition suggests that having more information can increase prediction accuracy of uncertain outcomes. In four experiments, we show that more knowledge can decrease accuracy and simultaneously increase prediction confidence. Participants were asked to predict basketball games sampled from a National Basketball Association season. All participants were provided with statistics (win record, halftime score), while half were additionally given the team names. Knowledge of names increased the confidence of basketball fans consistent with their belief that this knowledge improved their predictions. Contrary to this belief, it decreased the participants’ accuracy by reducing their reliance on statistical cues. One of the factors contributing to this underweighting of statistical cues was a bias to bet on more familiar teams against the statistical odds. Finally, in a real betting experiment, fans earned less money if they knew the team names while persisting in their belief that this knowledge improved their predictions.