Confidence and the entrepreneur

Research on overconfidence suggests that excess levels of confidence can create self perceptions of invulnerability (Camerer & Lovallo, 1999; Hayward & Hambrick, 1997; Malmendier & Tate, 2005) which result in lower levels of effort on some tasks. Hubris theorists argue that when entrepreneurs and managers are overconfident they suffer from biases in making decisions about which courses of action to follow (Hayward, Shepherd, & Griffin, 2006).

These cognitive biases lead to short cuts in decision-making processes and result in starving the venture of resources. The entrepreneur’s script, conscious or otherwise, goes something like “I know I will succeed at this so I don’t need to spend too much time or money on it”.