Known Unknowns in Judgment and Choice

Many consumer judgments and choices are made under conditions of uncertainty—from budgeting, planning and contracting to investing and insuring. Such activities require not only predictions of relevant outcomes, but also metacognitive awareness of the adequacy of such predictions. In this presentation I’ll review a series of studies that investigate various illusions of understanding in which consumer metacognition fails, and explore interventions designed to improve consumer judgment and choice. Rozenblit and Keil (2002) report that people tend to be over-confident in how well they understand how everyday objects like toilets and combination locks work. Inducing them to generate a detailed mechanistic explanation shatters this sense of understanding and leads judges to decrease their rated confidence in their own understanding (see also Alter, Oppenheimer, & Zemla 2010; Keil 2003). We argue that this illusion of understanding reflects a more general tendency for consumers to focus on known facts and present information and ignore or underweight unknown facts and missing information, similar to the What You See Is All There Is (WYSIATI) phenomenon discussed by Kahneman (2011). We find that the Cognitive Reflection Test (CRT, Frederick, 2005) is a valid indicator of the tendency to spontaneously consider “known unknowns”.