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Entry Mistakes, Entrepreneurial Boldness and Optimism


  • Brocas, Isabelle
  • Carrillo, Juan D


We analyze the investment decision of a population of time inconsistent entrepreneurs who overweight current payoffs relative to future returns. We show that, in order to avoid inefficient procrastination, agents may find it optimal to keep optimistic priors about their chances of success and 'blindly invest'. This explains entrepreneurial boldness and entry mistakes (or an excessive level of investment in the economy) without assuming the existence of boundedly rational, 'intrinsically optimistic' managers. We also prove that: (i) there is a negative correlation between the risk free rate and theproportion of bold entrepreneurs in the economy, (ii) realist and bold agents can coexist and achieve the same payoff and (iii) entrepreneurs with highest ability are most likely to keep optimistic prospects and make entry mistakes.

Suggested Citation

  • Brocas, Isabelle & Carrillo, Juan D, 1999. "Entry Mistakes, Entrepreneurial Boldness and Optimism," CEPR Discussion Papers 2213, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2213

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    References listed on IDEAS

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    Cited by:

    1. Battaglini, Marco & Benabou, Roland & Tirole, Jean, 2005. "Self-control in peer groups," Journal of Economic Theory, Elsevier, vol. 123(2), pages 105-134, August.
    2. Caillaud, Bernard & Jullien, Bruno, 2000. "Modelling time-inconsistent preferences," European Economic Review, Elsevier, vol. 44(4-6), pages 1116-1124, May.
    3. Brocas, Isabelle & Carrillo, Juan D., 2000. "The value of information when preferences are dynamically inconsistent," European Economic Review, Elsevier, vol. 44(4-6), pages 1104-1115, May.
    4. Aviad Heifetz & Yossi Spiegel, 2000. "On the Evolutionary Emergence of Optimism," Discussion Papers 1304, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Rubinstein, Ariel, 2001. "A theorist's view of experiments," European Economic Review, Elsevier, vol. 45(4-6), pages 615-628, May.
    6. Brocas, Isabelle & Carrillo, Juan D, 1999. "On Rush and Procrastination," CEPR Discussion Papers 2237, C.E.P.R. Discussion Papers.

    More about this item


    Behavioural Finance; Boldness; Investment; Optimism; Time Inconsistency;

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other


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