Overconfidence and Effort in New Venture Development
Frontiers of Entrepreneurship Research, 2008
14 Pages Posted: 5 Mar 2009
Confidence can have both positive and negative effects on entrepreneurial activities. On the one hand confidence boosts motivation and leads entrepreneurs to exert more effort on key tasks. But on the other hand overconfidence can induce decision-making short cuts and a tendency to reduce effort on key tasks. I propose that the positive effect of confidence on effort is most likely to occur on action tasks, and the negative effect of overconfidence on effort is most likely to occur on judgment tasks. These propositions are tested with a small sample of active entrepreneurs, however a positive effect of confidence on entrepreneurial tasks (entrepreneurial self-efficacy) is found for both action and judgment tasks. This suggests that the motivational impact of confidence outweighs the decision-making bias of overconfidence.
JEL Classification: M13
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