Entrepreneurial success and failure: Confidence and fallible judgement
AbstractExcess entry – or the high failure rate of market-entry decisions – is often attributed to overconfidence exhibited by entreprene urs. We show analytically that whereas excess entry is an inevitable consequence of imperfect assessments of entrepreneurial skill, it does not imply overconfidence. Judgmental fallibility leads to excess entry even when everyone is underconfident. Self-selection implies greater confidence (but not necessarily overconfidence) among those who start new businesses than those who do not and among successful entrants than failures. Our results question claims that “entrepreneurs are overconfident” and emphasize the need to understand the role of judgmental fallibility in producing economic outcomes.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1130.
Date of creation: Dec 2008
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Web page: http://www.econ.upf.edu/
Excess entry; fallible judgment; overconfidence; skill uncertainty; entrepreneurship; LeeX;
Find related papers by JEL classification:
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-10 (All new papers)
- NEP-BEC-2009-01-10 (Business Economics)
- NEP-ENT-2009-01-10 (Entrepreneurship)
- NEP-HRM-2009-01-10 (Human Capital & Human Resource Management)
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