Does Overconfidence Affect Entrepreneurial Investment?
نویسندگان
چکیده
This research examines the affect of overconfidence on the entrepreneurial investment choices of individuals. We argue that individual overconfidence is associated with more aggressive entrepreneurial investment decisions. We show that the propensity of an individual to begin startup activities is positively associated with the individual's level of overconfidence. Furthermore, overconfidence increases the likelihood of a nascent entrepreneur creating an operating business from her startup activity. These results are significant even when controlling for other known characteristics associated with the tendency to undertake entrepreneurial venturing. We investigated decisions related to venture funding and human capital investment in the venture, and investment risk but did not find that overconfidence was significantly related to these choices. This journal article is available at ScholarlyCommons: https://repository.upenn.edu/wharton_research_scholars/42 DOES OVERCONFIDENCE AFFECT ENTREPRENEURIAL INVESTMENT? Gavin Cassar Henry Friedman The Wharton School University of Pennsylvania
منابع مشابه
Political strategies, entrepreneurial overconfidence and foreign direct investment in developing countries
Foreign investors in developing countries are exposed to comparatively high levels of environmental uncertainty and often use political activities to manage this uncertainty. At the same time, international entrepreneurs seek out uncertain environments, because of the potential opportunities and upside potential associated with uncertain situations. We investigate the interplay between politica...
متن کاملDoes Overconfidence Affect Corporate Investment? CEO Overconfidence Measures Revisited
This article presents the growing research area of Behavioural Corporate Finance in the context of one specific example: distortions in corporate investment due to CEO overconfidence. We first review the relevant psychology and experimental evidence on overconfidence. We then summarise the results of Malmendier and Tate (2005a) on the impact of overconfidence on corporate investment. We present...
متن کاملDoes Self-Efficacy Affect Entrepreneurial Investment?
We empirically examine the effect of self-efficacy on entrepreneurial investment choices. We identify various attributes of entrepreneurial investment and argue that higher self-efficacy is associated with more aggressive entrepreneurial investment decisions. We show that self-efficacy increases the likelihood of being a nascent entrepreneur and creating an operating business. Self-efficacy als...
متن کاملEntrepreneurial Success and Failure: Confidence and Fallible Judgment
Excess entry – or the high failure rate of market-entry decisions – is often attributed to overconfidence exhibited by entrepreneurs. 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 impl...
متن کاملDealing with Entrepreneurial Uncertainty: Do Current Measures of Overconfidence Tell the Whole Story?
DEALING WITH ENTREPRENEURIAL UNCERTAINTY: DO CURRENT MEASURES OF OVERCONFIDENCE TELL THE WHOLE STORY? Researchers have been studying entrepreneurial cognitive biases in making decisions under uncertainty for some time. This paper reviews the overconfidence bias and the main methodology used to examine it, calibration of probabilities, concluding there may be weaknesses in using this method. An ...
متن کامل