Belief Dispersion and Entrepreneurial Entry

Joshua Gans

No 35091, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When should a founder act on a strong belief about an opportunity, knowing that rivals assessing the same opportunity may hold very different views? This paper studies entry decisions when entrepreneurs hold heterogeneous beliefs about an opportunity's value and each founder knows only the range of views rivals might hold. In equilibrium, a founder enters only when their conviction exceeds a threshold set by anticipated rival optimism. The relationship between belief dispersion and entry is surprisingly rich: depending on the founder's conviction and the cost of entry, there may be no level of dispersion that supports entry, all levels may support it, or only a middle range may, so that an outside observer may see the most entry at intermediate levels of belief dispersion. When founders can delay, high dispersion that deters immediate entry need not prevent it altogether: the absence of rival action gradually reveals that competitors are less bullish than feared. Finally, not all conviction-building is equal. Validation that only the founder sees strengthens entry incentives fully, whereas validation visible to the whole market partly backfires by encouraging rivals. The paper formalises the intuition that entrepreneurial value comes not from optimism alone but from optimism that the founder anticipates rivals will not share, and derives predictions linking belief dispersion to entry patterns.

JEL-codes: D81 D83 L13 L21 O36 (search for similar items in EconPapers)
Date: 2026-04
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