Excess entry, ambiguity seeking and competence: An experimental investigation

Daniela Grieco and Robin Hogarth (robin.hogarth@upf.edu)

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Excess entry refers to the high failure rate of new entrepreneurial ventures. Economic explanations suggest 'hit and run' entrants and risk-seeking behavior. A psychological explanation is that people (entrepreneurs) are overconfident in their abilities (Camerer & Lovallo, 1999). Characterizing entry decisions as ambiguous gambles, we alternatively suggest–following Heath and Tversky (1991)–that people seek ambiguity when the source of uncertainty is related to their competence. Overconfidence, as such, plays no role. This hypothesis is confirmed in an experimental study that also documents the phenomenon of reference group neglect. Finally, we emphasize the utility that people gain from engaging in activities that contribute to a sense of competence. This is an important force in economic activity that deserves more explicit attention.

Keywords: Competence; excess entry; entrepreneurship; overconfidence; Leex (search for similar items in EconPapers)
JEL-codes: C91 L10 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-cbe, nep-ent and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:778

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