A Problem in Industrial Marketing Management: The Over-Under Phenomenon

Abstract

Managers at all levels are called upon to give subjective estimates of the probability of occurrence of events (e.g., in PERT, in setting of sales targets, etc.). The over-under effect is a phenomenon which causes people to over-estimate the probability of occurrence of events with relatively low objective probabilities and under-estimate probabilities of events with relatively high objective probability of occurrence. Therefore, it becomes necessary for the decision analyst to know the relationship between objective probabilities and subjective estimates, and whether the favorability of the outcome may change this relationship.