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Entrepreneurial success and failure: Confidence and fallible judgement
Hogarth, Robin; Karelaia, Natalia
Universitat Pompeu Fabra. Departament d'Economia i Empresa
Excess entry or the high failure rate of market-entry decisions is often attributed tooverconfidence exhibited by entreprene urs. We show analytically that whereas excess entryis an inevitable consequence of imperfect assessments of entrepreneurial skill, it does notimply overconfidence. Judgmental fallibility leads to excess entry even when everyone isunderconfident. Self-selection implies greater confidence (but not necessarilyoverconfidence) among those who start new businesses than those who do not and amongsuccessful entrants than failures. Our results question claims that entrepreneurs areoverconfident and emphasize the need to understand the role of judgmental fallibility inproducing economic outcomes.
2009-03-23
Behavioral and Experimental Economics
excess entry
fallible judgment
overconfidence
skill uncertainty
entrepreneurship
leex
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