The Relationship Among Biases, Misperceptions, and the Introduction of Pioneering Products: Examining Differences in Venture Decision Contexts

Posted: 24 Nov 2009

See all articles by Mark Simon

Mark Simon

Oakland University - School of Business Administration - Dept. of Management and Marketing

Susan M. Houghton

affiliation not provided to SSRN

Date Written: 2002

Abstract

Previous studies on entrepreneurship have not differentiated between types of entrepreneurial decisions or new venture environments, assuming they were homogenous in terms of task and context. The authors examine the ways in which decision context causes particular biases, and how these biases, in turn, create context-specific misperceptions. Foundations of entrepreneurial behavior research are reviewed, such as the information context (firm context and decision context) and information search processes (active versus passive search, personal versus impersonal information sources). Moreover, three cognitive biases entrepreneurs may exhibit are presented: the illusion of control, the belief in the law of small numbers, and reasoning by analogy. Focusing on the role of firm size, age, and type of product introduction, it is proposed that entrepreneurs in smaller, younger (pioneering) firms are more likely to manifest the illusion of control, law of small numbers, and reasoning by analogy. It is found that the biases contribute to underestimating competition, overestimating demand, and overlooking necessary assets. The resource-based view of the firm was the dominant theory used to explain pioneering behavior. The effects of two information contexts – firm age and pioneering decision context – on the entrepreneur’s information search process are analyzed in terms of the degree to which the search is active, personal and external. The framework offered by the study may provide insights into actions entrepreneurs may take to minimize detrimental effects of cognitive biases. The study will also help develop explanations of other aspects of information processing that affect other cognitive biases and organizational action in entrepreneurship. (CBS)

Keywords: Theoretical, Information bias, Firm theory, Cognitive bias, Information utilization, Cognition, Management decisions, Information seeking, Organizational behavior, Information behavior

Suggested Citation

Simon, Mark and Houghton, Susan M., The Relationship Among Biases, Misperceptions, and the Introduction of Pioneering Products: Examining Differences in Venture Decision Contexts (2002). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1510549

Mark Simon (Contact Author)

Oakland University - School of Business Administration - Dept. of Management and Marketing ( email )

Rochester, MI 48309-4401
United States
248-370-3295 (Phone)

HOME PAGE: http://www.sba.oakland.edu/Faculty/simon/index.htm

Susan M. Houghton

affiliation not provided to SSRN

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