how many times have I thought 'it's earlier / later than expected' then I don't know? Probably twice a day or so?
People differ. For me it is about once a month. My conjecture is that if you experimented for two weeks with guessing the time before looking at your watch, your internal chronometer would improve from the exercise :-). The point of the question is to assist in valuing Time of Day display. If looking at my wrist tells me nothing I do not already know, then it seems the value of looking at my wrist ought to be negligible. When you look at your watch, I doubt that you also immediately look at your phone, even though your phone, too, displays the Time of Day; and I think you do not look at your phone because you (reasonably) believe you already know the Time of Day, so you have nothing to gain by looking at your phone.
So any time you need to know the time and you want it displayed on your Apple Watch, you need to have an alarm set?
You would not need an alarm. You would enter "movie 7:45pm to 10:15pm" in your calendar. The movie would start. It looks like the characters' problems are about to be resolved in an all-too-tidy way, and you suspect a narrative twist. You glance at your watch, read "movie ends in 45 minutes", nod grimly, and prepare yourself for the sudden reappearance of the bad guy or death of a sympathetic character, depending on movie genre. You can also think to yourself "guess it's about 9:30, then" if knowing-it-is-9:30 is of sufficient value to you do do the mental arithmetic.
If knowing the time without reference to any event in your calendar is valuable to you, you could install the Time of Day app and see the Time of Day on more than a score of beautiful displays crafted by a team of the best graphic designers in the world, at the bargain price of $50. Knowing Apple and graphic designers, I suspect there would be free Downloadable Content in the future, too, to keep the Time of Day fanbase happy.
What would customers have to gain?
In the thought experiment, customers who have no interest in time-of-day would pay $50 less for the device, so they would gain $50.
What does Apple gain by doing this?
In the thought experiment, my prediction is Apple would sell so many more computer-on-your-wrist-devices that the total profits would be greater, even after the $50 price reduction. The designers would know that their time-of-day display work was valuable, and feel good that real people were paying real money to experience it.