Keeping up with the Joneses: economic impacts of overconfidence in micro-entrepreneurs

Julia Seither

NOVAFRICA Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics, NOVAFRICA

Abstract: This paper investigates the effects of incorrect beliefs over relative firm performance on micro-firm outputs through a randomized field experiment in Mozambique. At baseline, 76% of firm owners in the bottom of the distribution are overconfident about their firm s performance. The estimates reveal that correcting these beliefs through a simple, easily scalable information experiment closes the performance gap between treated firms in the bottom of the distribution at baseline and average and top firms by almost 43%. Moreover, the treatment increases the time a firm owner allocates to her business, improves strategic cooperation with the most important business partners, and affects the pricing strategy of treated firm owners. My results suggest that incorrect beliefs about relative performance are a binding constraint to firm growth that have large implications for managerial behavior and firm outcomes.

JEL-codes: D22 D91 O12 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2021
New Economics Papers: this item is included in nep-bec, nep-cwa, nep-ent, nep-exp and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:unl:novafr:wp2108

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