Optimism, overconfidence and entrepreneurial activity

Abstract

PurposeThis paper aims to explore the question of confidence in entrepreneurship, and the impact confidence has on key tasks in the venture development process.Design/methodology/approachPropositions about the relationship between key elements of confidence (optimism and overconfidence) are made in order to unpack the confidence construct. Simple tests of these propositions are conducted using a small sample of Australian entrepreneurs. Further propositions are made about the impact of optimism and overconfidence on activity across different phases of the new venture development process.FindingsTwo elements of confidence, optimism and overconfidence, are distinct in their association with each other and with a third individual difference (regulatory focus). The dual and sometimes opposing impacts of optimism and overconfidence on new venture activity are explored. Optimism and overconfidence are both beneficial when deciding to become an entrepreneur, but overconfidence is harmful when making decisions in response to setbacks.Research limitations/implicationsConclusions are limited by the sample size and simple analytical techniques. Rather, the impact of the paper is in the implications of the independence of optimism and overconfidence. Future research can explore and test the propositions made about when each is harmful and when beneficial.Practical implicationsFor entrepreneurs, it is important to be aware of your optimism and overconfidence in different situations. When optimism is beneficial, use it, but when overconfidence is harmful, mitigate against it by asking the right questions and working with others to check assumptions and strategies.Originality/valueThis paper distinguishes between two individual differences, optimism and overconfidence, that are typically thought to be interdependent and beneficial for entrepreneurs.

The Relationship between Optimism, Pre-Entrepreneurial Curiosity and Entrepreneurial Curiosity

“…Bengtsson and Ekeblom (2014) suggested, based on existing empirical evidence that entrepreneurs are optimists, a finding researchers often interpret as evidence of a behavioral bias in entrepreneurial decision-making. Further several empirical papers have tested the expectation that entrepreneurs are optimists (Bengtsson and Ekeblom, 2014;Cooper, Woo and Dunkelberg, 1988;Busenitz and Barney, 1997;Camerer and Lovallo, 1999;Arabsheibani et al, 2000;Fraser and Greene, 2006;Puri and Robinson, 2006;Koellinger, 2008;Crane and Crane, 2007;Trevelyan, 2008;Ucbasaran et al, 2010;Cassar, 2010 etc. ) and the main finding from existing works is that entrepreneurs hold beliefs about their own life or work.…”

Effectuation and Causation as the Mediators of the Relationship between Cultural Value Orientations and New Venture Performance

“…РЖМ 15 (4): 397-424 (2017) влияния этого показателя состоит в том, что в хорошо развитых с регулятивной точ-ки зрения системах простота регистрации и ведения бизнеса может служить причи-ной создания экономически нежизнеспособ-ных компаний из-за склонности к самоуве-ренности у предпринимателей [Trevelyan, 2008]. В то же время опыт работы пред-принимателя, опыт работы в собственной фирме и размер фирмы показали поло-жительную связь с результатами деятель-ности фирмы (соответственно, β = 0,299; β = 0,016; β = 0,271; p < 0,001).…”

The Impact of Cognition on New Value Creation within the Institutional Theory Perspective

“…This tends to suggest that entrepreneurs with high levels of optimism may perceive any opportunity as less risky [35]. Nonetheless, it is also true that optimistic entrepreneurs tend to be more growth oriented [39].…”

“…New value creation is a dynamic process, and, as such, it produces high levels of both self-eicacy and optimism, even in the face of potentially low performance, suggesting that the relationship between risk perception and optimism is a complicated one. Indeed, Trevelyan [39] argues that risk-taking intensity and optimism are positively related. Optimists tend to be more alert to new opportunities [38].…”