The Impact of Overconfidence on Entrepreneurial Process: Entrepreneurs versus Students
Journal of Economics, Management and Trade · pp. 1889–1904 · Published 1 Aug 2014
10.9734/BJEMT/2014/10927Abstract
Empirical research documents that overconfidence has a strong impact on investment decision. In this experimental study using a within-subject design and entrepreneurial process, we detail this relationship by introducing a stage of identification (initial knowledge about the entrepreneurial opportunities to invest in) and evaluation (forecasts to be made) before the investment decision. We also examine the role of expertise by comparing a group of entrepreneurs (320 Tunisian entrepreneurs) and a group of students (70), control in the role of risk aversion, and implement different measures of overconfidence (miscalibration in two formats – the BTA effect and the illusion of control). Our results show that no differences were observed between entrepreneurs and students in the degree of overconfidence. However, overconfidence seems to determine decision-making in a different way across the two groups. Concerning students, we observed that overconfidence influenced general tasks such as identification of the entrepreneurial opportunities but when it came to investing, risk aversion had a major effect. In contrast, entrepreneurs were strongly influenced by their overconfidence. For them, it mainly affected specific tasks (evaluation and investment choices) but, surprisingly, risk aversion had no effect on investment decision. Our results suggest that introducing an entrepreneurial opportunities in the decision process is an aid to understanding the differences between experts and novices.
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