I can tell you that it's not just women who overestimate someone else's dick size. Men do it to me all the time. "Öh, you've got to be at least 10 inches" is what I often hear from the boys. Lowest estimate: 8.5. Highest estimate: 12" (he musta been drunk or kidding). Actual size: 7.95". One would think that guys would have a better handle on estimating size considering we all have a penis we look at every day. But I think for men that's part of the problem. We view ours from above where it doesn't look as big to us as someone else's which we can see from more beneficial angles. That may have something to do with it.
But then again so can the fact that a lot of guys pad their measurements to make themselves SOUND bigger. I find that to be reprehensible behavior. It's flat-out false advertising (read: LYING) and, as I have said on my website, saying you have a bigger dick doesn't make it so. It does, however, make you look like an insecure jackass.
I agree... let others think you're larger, especially if it turns them on. But don't go around telling people you have an 11-inch dick just because your girlfriend / boyfriend / trick overestimates you. Tell those people the truth and let them be surprised to find out you are larger than they were expecting!