Entrepreneurial overconfidence and its impact upon performance

Anna Chiara Invernizzi, Anna Menozzi, Diana Anna Passarani, Dean Patton, Giampaolo Viglia
  • International Small Business Journal Researching Entrepreneurship, November 2016, SAGE Publications
  • DOI: 10.1177/0266242616678445

Entrepreneurial overconfidence and its impact upon performance

What is it about?

The majority of entrepreneurs are prone to overconfidence when making budgetary forecasts and this is directly associated with the proprensity of the firm to fail. The impact of overconfidence is mitigated by an entrepreneur’s level of educational attainment and the use formal budgetary controls.

Why is it important?

For early-stage entrepreneurs, overconfidence could be beneficial and provide them with the energy and enthusiasm to pursue opportunities in difficult contexts. However, once a firm is established entrepreneurs need to be aware of such cognitive bias, particularly when forecasting future performance, as is it can negatively impact upon performance and, in some cases, failure. Overconfidence is less of an issue amongst the more educated entrepreneur and those that use formal budgetary control systems. This suggests a role for government and business support agencies to improve knowledge and awareness among the founders of business.

Perspectives

Professor Dean A Patton
Bournemouth University

Overconfidence is no bad thing and founding teams require such traits to nurture their new ventures. As the business evolves the value of such traits disipates and entrepreneurs must develop a more holistic set of attributes on which to base future strategies of the firm.

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http://dx.doi.org/10.1177/0266242616678445

The following have contributed to this page: Professor Dean A Patton and Dr Giampaolo Viglia