The Effect of Task Predictability and Prior Probability Disclosure on Judgment Quality and Confidence.

ABSTRACT: Seventy-one second-year MBA students participated in a computer-based laboratory experiment involving bankruptcy prediction. The study tested for main and interaction effects of variation in task predictability and disclosure of the prior probability of bankruptcy on subjects' predictive accuracy and related confidence levels. As hypothesized, task predictability was significantly and positively related to predictive accuracy. The main effect of disclosure of the prior probability of bankruptcy was not significant, but its interaction effect with task predictability was significant when accuracy rates for bankrupt and nonbankrupt firms were analyzed separately. In particular, disclosure of the prior probability to subjects in the low task predictability condition resulted in a significant Improvement in their predictive accuracy. Subjects in all treatment groups were overconfident about their predictive accuracy, with subjects in the low task predictability condition significantly more overconfident than subjects in the high task predictability condition.