How Do Judgmental Overconfidence and Overoptimism Shape Innovative Activity?
39 Pages Posted: 6 Feb 2013
Date Written: January 31, 2013
Recent field evidence suggests a positive link between overconfidence and innovative activities. In this paper we argue that the connection between overconfidence and innovation is more complex than the previous literature suggests. In particular, we show theoretically and experimentally that different forms of overconfidence may have opposing effects on innovative activity. While overoptimism leads to an innovation enhancing effect, judgmental overconfidence inhibits innovation. Our results indicate that future research is well advised to take into account that the relationship between innovation and overconfidence may crucially depend on what type of overconfidence is most prevalent in a particular context.
Keywords: innovation, entrepreneurship, overconfidence, experiment
JEL Classification: C920, D830, D230
Suggested Citation: Suggested Citation