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Entrepreneurial success and failure: Confidence and fallible judgement

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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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  • Robin Hogarth & Natalia Karelaia, 2008. "Entrepreneurial success and failure: Confidence and fallible judgement," Economics Working Papers 1130, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1130
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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.

    More about this item

    Keywords

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

    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; Personnel Economics - - Business Administration - - - New Firms; Startups

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