I don't think I would go a whole size smaller but the idea is to make it a little smaller so you can stretch it to the exact size it should be.
Too much stretching and it will look stretched out.
I don't think it's possible to block something smaller (unless it shrinks from the blocking method but that will change the texture drastically sometimes). Maybe a little but not much.
Do you want a Cardigan to be snug? The plan for mine is that it will be like a jacket. At the time of year I will wear it I will be wearing heavier cloths under it.
Heat doesn't make wool shrink, heat makes it more prone to felting, just like harsh soap makes it prone to felting. To actually felt takes agitation.
Natural hair has plates, the heat and soap makes those plates stand up. When agitated while those plates are standing the hair sticks together. Just like when you get the frizzies and your hair gets ratted up.
I steam block wool and it doesn't shrink at all.