The Borrower's Curse: Optimism, Finance and Entrepreneurship

Meza, David de; Southey, Clive

doi:10.2307/2235253

Cited by 324 publications

(226 citation statements)

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“…Optimists often deluded themselves into becoming entrepreneurs with high risks of failure (De Meza and Southey, 1996). Another experiment conducted by Coelho and De Meza (2006) discovered that irrational expectations (also interpreted as unrealistic optimism) led entrepreneurs to behave in ways that are contrary to their interests and resulted in a loss of well-being.…”

Section: Limitations and Future Research Opportunitiesmentioning

confidence: 99%

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

Jeraj¹

2014

Organizacija

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Background: Entrepreneurship and entrepreneurs become more and more interesting fields for a scientific research. This paper addresses the relationship between optimism, pre-entrepreneurial curiosity and entrepreneurial curiosity as three determinants of entrepreneurial psychology. Literature review showed optimism is important for entrepreneurs and influence them mostly in a positive way. Although entrepreneurial curiosity is important determinant for entrepreneurs and it was connected with entrepreneurial self-efficacy, openness, and company's growth the connection with optimism remained unexplored until this research. Methods: A multi-country empirical validation was conducted on a sample of entrepreneurs from Slovenia and USA. A structural equation modelling, exploratory factor analysis (EFA) and confirmatory factor analysis (CFA) were used to develop a model, which complement theoretical predisposition and fit the data. Results:The results of the study show that higher levels of optimism lead to higher levels of pre-entrepreneurial curiosity and higher levels of pre-entrepreneurial curiosity lead to higher levels of entrepreneurial curiosity. Conclusions: The contribution of this study is manifold. From the theoretical view, a literature gap on the field of optimism and entrepreneurial curiosity combined is fulfilled and a structural equation model with optimism and entrepreneurial curiosity was established. Since openness, pre-entrepreneurial curiosity and entrepreneurial curiosity are related policy makers can test individuals according to their level of researched determinants and motivate more entrepreneurial perspective ones to become active in the entrepreneurship process. Thus, entrepreneurs can use these results to recruit more entrepreneurial oriented employees.

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Section: Limitations and Future Research Opportunitiesmentioning

confidence: 99%

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

Jeraj¹

2014

Organizacija

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“…It is well known that entrepreneurs tend to be excessively optimistic (Cooper et al, 1988;De Meza and Southey, 1996;Manove and Padilla, 1999). Optimism might even be positively correlated with objective measures of performance, although the empirical evidence so far does not support this conjecture (Cooper et al, 1988).…”

Section: Other Explanatory Variablesmentioning

confidence: 95%

Illegal Entrepreneurship Experience

Aidis

Praag

2004

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Executive SummaryThere is growing evidence in existing theoretical and empiric al literature that shows the positive influence of conventional human capital variables such as formal education and previous work experience on business performance. But there has been little empirical work done on the influence of unconventional forms of human capital such as illegal entrepreneurship experience.In this article, we explore the effects of illegal entrepreneurship experience (IEE) on the performance and motivation of private 'legal' businesses. In general, we would expect IEE to provide pos itive influences on both business performance and motivation.Several empirical studies have been conducted on the relationship between IEE and the probability of self-employment in a developed market context or a transition context. However the relationship between IEE and business performance has not yet been investigated. This study aims to fill this knowledge gap by analyzing the influence of IEE on business performance and motivation.The transition from a centrally planned economic system to a free ma rket system such as in the case of Lithuania provides an interesting case study for exploring IEE. Throughout most of the period of central planning, private entrepreneurship activities were highly restricted 1 but in post-Soviet Lithuania, private enterprise has been legalized.Though IEE obtained within centrally planned economies is a historical phenomenon, it may provide insights to policy measures that exploit the significance of illegal business experience for legal business performance today. For exa mple, if the relationship between business performance and IEE is found to be a positive one, governments and capital suppliers could screen for these characteristics in order to select and support a more effective pool of entrepreneurs.Our analysis is based on survey data collected by one of the authors in Lithuania. The sample size is made up of 399 business owner respondents, our empirical equivalent of entrepreneurship.1 "It is difficult to imagine a regime more hostile towards entrepreneurship than the centrally planned economies of Eastern Europe" (Earle and Sakova, 2001: 6). 3Twenty two percent of the respondents have illegally gathered experience as an entrepreneur, i.e. before this labor market choice became a legal possibility. These business owners are remarkably similar in terms of most of their personal characteristics ...

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“…Such managerial optimism and resulting biases have long been studied in economics (De Meza and Southey 1996;Kahneman, Slovic and Tversky 2013) and management research (Hilary et al 2016;Ucbasaran et al 2010). After investing a lot of time and effort into product development, managers want to see the product being used as much as possible by as many people as possible (leading them to favor low customer acquisition cost over higher revenue).…”

Section: [Insert Table 4 About Here]mentioning

confidence: 99%

Freemium Pricing: Evidence from a Large-scale Field Experiment

et al. 2017

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AcknowledgementsWe wish to thank Michaela Draganska for helpful comments. We are further grateful for helpful discussions with: Art Owen, Stephan Seiler, Udo Wagner, Eric Seufert, participants of the Conference on Digital Experimentation at MIT, participants of the Media Economics Workshop at ETH Zuerich and seminar participants at the Institute of Marketing of Humboldt University Berlin and at the Institute for Strategy, Technology and Organization of Ludwig-Maximilians-University Munich. Finally, we wish to extend our heartfelt gratitude to Wooga for data access and highly fruitful cooperation; in particular, we wish to thank Maija Marincenko, Timothy Frohner, Cedrik Neumann and Anton Troynikov.Electronic copy available at: https://ssrn.com/abstract=2888471 2 AbstractFirms commonly run field experiments to improve their freemium pricing schemes. However, they often lack a framework for analysis that goes beyond directly measurable outcomes and focuses on longer term profit. We aim to fill this gap by structuring existing knowledge on freemium pricing into a stylized framework. We apply the proposed framework in the analysis of a field experiment that contrasts three variations of a freemium pricing scheme and comprises about 300,000 users of a software application.Our findings indicate that a reduction of free product features increases conversion as well as viral activity, but reduces usage -which is in line with the framework's predictions.Additional back-of-the-envelope profit estimations suggest that managers were overly optimistic about positive externalities from usage and viral activity in their choice of pricing scheme, leading them to give too much of their product away for free. Our framework and its exemplary application can be a remedy.Keywords: Freemium, pricing, digitization, experimentation 3 Digital products are characterized by high cost to produce the first copy and very low marginal cost of reproduction (Arrow 1962). This particular cost structure has given rise to freemium pricing -i.e., a hybrid pricing scheme that combines free use of a basic version of the product in perpetuity, with premium upgrades that require the payment of a fee (Anderson 2009;Pauwels and Weiss 2008). Early indications that such pricing strategies are promising were presented by Scott (1976) and more recently by Bawa and Shoemaker (2004).Freemium pricing is widely adopted by technology companies for their software applications as it allows them to acquire a large number of users at low cost (Lee, Kumar and Gupta 2015). Despite the widespread use of freemium pricing, many firms find it Firms therefore regularly run field experiments ('A/B tests') to improve their pricing scheme (Levitt et al. 2016;Seufert 2014;Wedel and Kannan 2016). In evaluating these experiments -due to the aforementioned complexities -managers are rarely guided by an assessment of (multi-period) profit, but mostly base their evaluation on performance indicators that are directly measurable (Seufert 2014). The scientific literature on 4 freemium p...

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The Borrower's Curse: Optimism, Finance and Entrepreneurship

Cited by 324 publications

References 21 publications

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

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

Illegal Entrepreneurship Experience

Freemium Pricing: Evidence from a Large-scale Field Experiment

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