When Certainty Backfires: The Effects of Unwarranted Precision on Consumer Loyalty

Eleonore Batteux, Zarema Khon, Avri Bilovich, Samuel G.B. Johnson and David Tuckett
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Eleonore Batteux: University College London
Zarema Khon: Nazarbayev University, Graduate School of Business
Avri Bilovich: University College London
Samuel G.B. Johnson: University of Waterloo
David Tuckett: University College London

No 2025/03, Working Papers from Nazarbayev University, Graduate School of Business

Abstract: Consumers are drawn to the promise of certainty that precise forecasts seem to provide, even though they are often misleading. Yet we know less about how consumers respond when precise forecasts prove inaccurate. In this paper, we investigate how inaccurate precise compared to range forecasts affect consumer judgments and decisions over time in an investment context. Specifically, we assess how they affect consumers' loyalty towards the forecaster and as well as their willingness to make the same kind of investment again. Consumers were less trusting of and loyal to investment management firms which communicated inaccurate precise forecasts, compared to firms which communicated inaccurate range forecasts which acknowledged uncertainty. But we did not find evidence that consumers changed their minds as to the sector into which they wanted to invest. In other words, they seem to punish the firm for inaccurate forecasts but this did not shift their preference for their type of investment. Interestingly, these effects largely persisted when consumers encountered similar inaccurate forecasts one week later, suggesting they do not learn to be suspicious of precise forecasts in general from exposure to inaccurate forecasts. Overall, our findings show that it is not in firms' interest to communicate overly precise forecasts under uncertainty as they risk punishment by consumers.

Keywords: forecasting; uncertainty; investing; trust; consumer loyalty; communication (search for similar items in EconPapers)
Pages: 66 pages
Date: 2025-03
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