A very common error. There are three options and it can be a bit confusing to know which one to choose when the Director is standing over you, expecting a quick decision. It's easier to learn about the options available to you beforehand. This will help when you are faced with this situation either as an offender or the non-offender. Do not make your own ruling. Always call the Director.
The options are:
The LHO (left hand opponent) may accept the bid. In this case there is no further penalty.
The offender may make their bid good by the lowest sufficient bid in that suit. There is no further penalty, so long as the new bid does not then become a conventional bid.
The offender may bid anything else (including a pass), but the penalty is that their partner is now excluded from bidding for the rest of the auction.
Option 1 is the first step and the offender cannot proceed to Option 2 before their LHO decides on rights. This is a common mistake also. Many offenders go "oh I'll make it good" when in fact the LHO may want to accept it. If you are the LHO, please consider your options carefully. In most cases it is prudent to not accept the insufficient bid. Make it more difficult for the sinner, is what I say. However, there may be an occasion where you think accepting the bid will let you get a bid in to convey something to your partner, that you may not be able to do if the offender made their bid good at a level that is too high for you. In other words, the non-offender can quite legitimately look for an opportunity to take advantage of the situation.
Offenders please note: If the LHO does not accept your insufficient bid, think very carefully before you choose your options. Option 2 is usually the best. For Option 3, remember that your partner can no longer bid, so you should now bid to the level you are prepared to play it in (in case everyone else passes). This could well mean you are taking a big punt and it can go horribly wrong or extremely right (much to the consternation of the opposition).
There is a definite difference in strategy when playing IMP scoring (Teams) and Matchpoint scoring (Pairs).
IMPS
In IMPs your main goal is to get as many plus scores as possible.
You never jeopardize your contract to try for overtricks.
You always try to beat the opponents' contract.
You always bid aggressively - especially for vulnerable games.Slams are similar to non-vulnerable games with equal gains or losses.
It is generally right to be cautious in slam bidding against equal opposition.
Matchpoints
In matchpoints, it is important to take all the possible tricks. As declarer, it is imperative to try for overtricks. Sometimes, you even risk your contract to try for those elusive extra tricks.
As defender, it is important to take all the tricks to which your side is entitled ... whether it beats the contract or not.
In matchpoints, it is often not necessary to bid close games. If you can play the hand one trick better than the field, you need not risk getting too high.
Conclusion
Most players find it much harder to play matchpoints than IMPs. Clearly, it is easier to simply worry about making the hand or beating the hand than making extra tricks. Sometimes, there are two or more possible ways to make an extra trick and you must decide which way affords you the highest percentage play. On the other hand, there is usually only one way to insure making or beating the hand, so you are faced with less difficult decisions.