Overconfidence in IT Investment Decisions: Why Knowledge can be a Boon and Bane at the same Time

Despite their strategic relevance in organizations, information technology (IT) investments still result in alarmingly high failure rates. As IT investments are such a delicate high-risk/high-reward matter, it is crucial for organizations to avoid flawed IT investment decision-making. Previous research in consumer and organizational decision-making shows that a decision’s accuracy is often influenced by decisionmakers’ overconfidence and that the magnitude of overconfidence strongly depends on decision-makers’ certainty of their knowledge. Drawing on these strands of research, our findings from a field survey (N=166) show that IT managers’ decisions in IT outsourcing are indeed affected by overconfidence. However, an in-depth investigation of three types of knowledge, namely experienced, objective and subjective knowledge, reveals that different types of knowledge can have contrasting effects on overconfidence and thus on the quality of IT outsourcing decisions. Knowledge can be a boon and bane at the same time. Implications for research and practice are discussed.