Auditors' overconfidence in predicting the technical knowledge of superiors and subordinates

Abstract

Prior research in auditing indicates that superiors are overconfident in predicting the technical knowledge of individual subordinates. We extend this literature by examining overconfidence effects when a subordinate makes a prediction about a superior's technical knowledge, and showing that the specific nature of the effects of task difficulty on overconfidence is contingent on the hierarchical rank of the predictor auditor relative to the target auditor. We investigate overconfidence effects when the target is an individual and extend it to the situation when the target is a group. We conducted an experiment using teams comprising audit seniors and managers. We find that audit managers' (seniors') overconfidence in audit seniors' (managers') technical knowledge is larger (smaller) for a more difficult task than for a less difficult task, for both individual and group predictions.