Overconfidence in Probability Distributions: People Know They Don’t Know but They Don’t Know What to Do About It

Quantifying uncertainty in the form of a probability distribution is a critical step in many managerial decision problems. However, a large body of previous work has documented pervasive overconfidence in subjective probability distributions (SPDs). We develop new methods to analyze judgments about variables which entail both epistemic and aleatory uncertainty and, in three experiments, study the quality of people’s SPDs in such settings. We...