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The Impact of Overconfidence and Ambiguity Attitude on Market Entry

Cédric Gutierrez, Thomas Astebro () and Tomasz Obloj
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Tomasz Obloj: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: We study the behavioral drivers of market entry. An experiment allows us to disentangle the impact on entry across different types of markets of two key behavioral mechanisms: overconfidence and attitude toward ambiguity. We theorize and show that the causal effect of overconfidence on entry is limited to skill-based markets and does not appear in those that are chance based. Moreover, we also find that, independent of confidence levels, individuals exhibit ambiguity-seeking behavior when the result of the competition depends on their skills, which in turn leads to higher levels of entry. This preference for ambiguity can thus explain results that have previously been attributed to overconfidence. Our results challenge existing literature that has inferred overconfidence from differential entry levels across types of markets.

Keywords: Behavioral Strategy; Ambiguity; Market Entry; Overconfidence; Entrepreneurship (search for similar items in EconPapers)
Date: 2020-07-10
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DOI: 10.2139/ssrn.3370305

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