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The Impact of Overconfidence and Ambiguity Attitude on Market Entry

Author

Listed:
  • Cédric Gutierrez
  • Thomas Astebro

    (Joseph L. Rotman School of Management - University of Toronto)

  • Tomasz Obloj

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

We study the behavioral drivers of market entry. An experiment allows us to disentangle the impact on entry across different types of markets of two key behavioral mechanisms: overconfidence and attitude toward ambiguity. We theorize and show that the causal effect of overconfidence on entry is limited to skill-based markets and does not appear in those that are chance based. Moreover, we also find that, independent of confidence levels, individuals exhibit ambiguity-seeking behavior when the result of the competition depends on their skills, which in turn leads to higher levels of entry. This preference for ambiguity can thus explain results that have previously been attributed to overconfidence. Our results challenge existing literature that has inferred overconfidence from differential entry levels across types of markets.

Suggested Citation

  • Cédric Gutierrez & Thomas Astebro & Tomasz Obloj, 2020. "The Impact of Overconfidence and Ambiguity Attitude on Market Entry," Working Papers hal-02896061, HAL.
    • Handle: RePEc:hal:wpaper:hal-02896061
    DOI: 10.2139/ssrn.3370305
    as

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    Cited by:

    1. Spielmann, Nathalie & Discua Cruz, Allan & Tyler, Beverly B. & Cerrato, Daniele, 2022. "Signaling stewardship and the value of family in a brand heritage Identity: A cross-cultural study of wineries," Journal of Business Research, Elsevier, vol. 153(C), pages 35-45.
    2. Persson, Lars & Seiler, Thomas, 2022. "Entrepreneurial optimism and creative destruction," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    3. Benno Torgler, 2021. "Behavioral Taxation: Opportunities and Challenges," CREMA Working Paper Series 2021-25, Center for Research in Economics, Management and the Arts (CREMA).
    4. Dayuan Li & Yuqing Zhao & Ding Wang & Lu Zhang & Yang Liu, 2023. "Too Far East is West: CEO Overconfidence Influences Firm Internationalization in Emerging Economies," Management International Review, Springer, vol. 63(3), pages 377-402, June.

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