Making sense of overconfidence in market entry

Published on Jan 1, 2015in Strategic Management Journal
· DOI :10.1002/SMJ.2196
Daylian M. Cain20
Estimated H-index: 20
(Yale University),
Don A. Moore53
Estimated H-index: 53
(University of California, Berkeley),
Uriel Haran7
Estimated H-index: 7
(BGU: Ben-Gurion University of the Negev)
Entrepreneurs are often described as overconfident (or at least very confident), even when entering difficult markets. However, recent laboratory findings suggest that difficult tasks tend to produce underconfidence. How do entrepreneurs maintain confidence in difficult tasks? Our two laboratory experiments and one archival study reconcile the literature by distinguishing types of overconfidence and identifying what type is most prominent in each type of task. Furthermore, we critically examine the notion that �overconfidence� explains excess market entry: we find that entry into different markets is not driven by confidence in one's own absolute skill, but by confidence in one's skill relative to that of others. Finally, we consider whether overconfidence in relative skill is driven by neglecting competitors or by systematic errors made when considering them
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