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Entrepreneurial success and failure: Confidence and fallible judgement

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  • Robin Hogarth

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  • Natalia Karelaia

Abstract

Excess 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 Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1130.

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Date of creation: Dec 2008
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Handle: RePEc:upf:upfgen:1130

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Excess entry; fallible judgment; overconfidence; skill uncertainty; entrepreneurship; LeeX;

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  13. Biais, Bruno & Weber, Martin, 2008. "Hindsight Bias and Investment Performance," IDEI Working Papers 476, Institut d'Économie Industrielle (IDEI), Toulouse.
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Cited by:
  1. Natalia Karelaia & Robin Hogarth, 2010. "The attraction of uncertainty: Interactions between skill and levels of uncertainty in market-entry games," Journal of Risk and Uncertainty, Springer, vol. 41(2), pages 141-166, October.

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