Authors
Robin M Hogarth, Daniela Grieco
Publication date
2004/10
Journal
UPF Economics and Business Working Paper
Volume
778
Description
Excess entry refers to the high failure rate of new entrepreneurial ventures. Economic explanations suggest'hit and run'entrants and risk-seeking behavior. A psychological explanation is that people (entrepreneurs) are overconfident in their abilities (Camerer & Lovallo, 1999). Characterizing entry decisions as ambiguous gambles, we alternatively suggest-following Heath and Tversky (1991)-that people seek ambiguity when the source of uncertainty is related to their competence. Overconfidence, as such, plays no role. This hypothesis is confirmed in an experimental study that also documents the phenomenon of reference group neglect. Finally, we emphasize the utility that people gain from engaging in activities that contribute to a sense of competence. This is an important force in economic activity that deserves more explicit attention.
Total citations
Scholar articles
RM Hogarth, D Grieco - UPF Economics and Business Working Paper, 2004