Identifying the Main Factors Influencing the Formation of Overconfidence Bias in Entrepreneurs: A Qualitative Content Analysis Approach

Jahangir Yadollahi Farsi (), Pouria Nouri, Abdolah Ahmadi Kafeshani and Mohamad Taghi Toghraee

International Journal of Academic Research in Business and Social Sciences, 2014, vol. 4, issue 4, 456-469

Abstract: Entrepreneurship plays an exceptionally important role in today’s societies by being the main driver of economic development as well as the source of prosperity and wealth creation. Entrepreneurs need to possess some important characteristics and fulfill some important activities to reach their goals. One of the main entrepreneurial activities necessary for their survival in today’s tumultuous business environment is decision making. Entrepreneurs need to make decision regarding a lot of factors. The body of research on entrepreneurial decision making is rich and according to it entrepreneurs are prone to decision making biases in their decision making processes. Lots of factors have been identified as the main causes of these biases which, by affecting entrepreneurial decisions, play major roles in the process of managing enterprises and its subsequent success or failure. One of the most common entrepreneurial decision making biases is overconfidence, which has been introduced as a major decision making bias among individuals, as well. Overconfidence is so common among entrepreneurs that some scholars have even hypothesized that entrepreneurs are more overconfident than others. Regarding its roots, it seems that individual factors like cognition, self efficacy and motivation combined with organizational and environmental factors are the main causes of overconfidence among entrepreneurs. Overconfidence impacts entrepreneurial decisions profusely and has dual effects on entrepreneurial enterprises. On one hand, overconfidence leads to entrepreneurial unprepared entry decisions into market and subsequent failure, on the other hand, in uncertain environments and under time pressure overconfidence could be entrepreneurs’ last resort to make decisions. Entrepreneurial overconfidence has been the topic of some papers but there seems to be a lack of a comprehensive study regarding the main causes of this important bias among entrepreneurs. This paper tries to fill this gap by conducting a vast study and using qualitative content analysis. After interviewing 25 Iranian techno-entrepreneurs and coding their narratives, we have come to the conclusion that self- Efficacy; Personal Optimism, Previous Experience, Environmental Pressure, data Limitations and Availability Heuristic are the main causes of overconfidence among entrepreneurs.

Keywords: Entrepreneur; Decision Making; Bias; Overconfidence; Content Analysis (search for similar items in EconPapers)
Date: 2014
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