Entrepreneurial success and failure: Confidence and fallible judgement

Robin Hogarth () and Natalia Karelaia

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

Abstract: Excess entry – or the high failure rate of market-entry decisions – is often attributed to overconfidence exhibited by entreprene urs. We show analytically that whereas excess entry is an inevitable consequence of imperfect assessments of entrepreneurial skill, it does not imply overconfidence. Judgmental fallibility leads to excess entry even when everyone is underconfident. Self-selection implies greater confidence (but not necessarily overconfidence) among those who start new businesses than those who do not and among successful entrants than failures. Our results question claims that “entrepreneurs are overconfident” and emphasize the need to understand the role of judgmental fallibility in producing economic outcomes.

Keywords: Excess entry; fallible judgment; overconfidence; skill uncertainty; entrepreneurship; LeeX (search for similar items in EconPapers)
JEL-codes: D80 L26 M13 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-bec, nep-ent and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Entrepreneurial Success and Failure: Confidence and Fallible Judgment (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1130

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