Entrepreneurial Success and Failure: Confidence and Fallible Judgement

27 Pages Posted: 7 Apr 2009

See all articles by Robin M. Hogarth

Robin M. Hogarth

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Natalia Karelaia

INSEAD - Decision Sciences

Date Written: December 15, 2008

Abstract

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 implies greater confidence (but not necessarily overconfidence) among those who start new businesses than those who do not and among successful entrants than failures. Our results question claims that entrepreneurs are overconfident and emphasize the need to understand the role of judgmental fallibility in producing economic outcomes.

Keywords: Excess entry, fallible judgment, overconfidence, skill uncertainty, entrepreneurship, LeeX

JEL Classification: D80, L26, M13

Suggested Citation

Hogarth, Robin M. and Karelaia, Natalia, Entrepreneurial Success and Failure: Confidence and Fallible Judgement (December 15, 2008). Available at SSRN: https://ssrn.com/abstract=1374234 or http://dx.doi.org/10.2139/ssrn.1374234

Robin M. Hogarth (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
34 93 542 2561 (Phone)
34 93 542 1746 (Fax)

Natalia Karelaia

INSEAD - Decision Sciences ( email )

United States

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