The authors dedicate this paper in honor of the memory of their deceased co-author, Erin Anderson. In dyadic business relationships, parties can be incorrect in reading their counterparts' relational closeness. For example, they can overestimate or underestimate the counterpart's commitment to their relationship. In the business-to-business (B2B) literature, the consequences of such inaccurate perceptions have not been empirically investigated. We advance and test the proposition that the impact of misreading the other party's relational closeness depends on the direction of the error. We propose that overestimating the counterpart's relational closeness (CRC) is beneficial, while underestimating the counterpart's relational closeness is detrimental for the relationship's functioning. Using original dyadic data in the service sector, we show that most companies underestimate their CRC, in which case becoming perceptually more accurate would improve their relationships. But the opposite holds for parties that overestimate their CRC, in which case becoming perceptually more accurate would actually make the relationship deteriorate. Furthermore, we show that even in long-standing relationships, companies do not know how accurate their perceptions are, even when they believe that they correctly perceive their CRC. We discuss managerial implications of our findings and encourage future research to determine why most decision makers underestimate their CRC, which can lead to impaired functioning of B2B relationships.
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