Overconfidence and Effort in New Venture Development

Babson College Entrepreneurship Research Conference (BCERC) 2008

Frontiers of Entrepreneurship Research, 2008

14 Pages Posted: 5 Mar 2009  

Rose Trevelyan

Australian School of Business, University of New South Wales - Australian Graduate School of Management

Abstract

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.

Keywords: Entrepreneurship

JEL Classification: M13

Suggested Citation

Trevelyan, Rose, Overconfidence and Effort in New Venture Development. Babson College Entrepreneurship Research Conference (BCERC) 2008; Frontiers of Entrepreneurship Research, 2008. Available at SSRN: https://ssrn.com/abstract=1346024

Rose S. Trevelyan (Contact Author)

Australian School of Business, University of New South Wales - Australian Graduate School of Management ( email )

Sydney, NSW 2052
Australia

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