Chapter 5 A Test of Perceptual Accuracy and Overconfidence in a Strategic Issue Context

There is growing evidence that managers perceive the general environment inaccurately, but very few studies have looked at the accuracy of specific strategic issue probability estimates, and at whether or not managers are aware of the accuracy or inaccuracy of their perceptions, something referred to as knowledge miscalibration. I explore perceptual inaccuracy and knowledge miscalibration in the form of overconfidence, in the context of demographic ageing, an issue currently affecting the tourism and hospitality industry. Using data from a survey of hotel managers, I find a high prevalence of perceptual error and evidence of a relatively large minority of respondents displaying knowledge overconfidence. Furthermore, I find a link between accurate environmental perceptions and strategic issue importance, suggesting that managers are better at accurately perceiving an issue when it is strategically important for their business. The same link does not exist with overconfidence, lending support to scholars arguing that overconfidence may be a trait, rather than being question-specific.