A Hubris Theory of Entrepreneurship
Posted: 10 Nov 2009
Date Written: 2006
Abstract
A hubris theory of entrepreneurship is developed inorder to account for the fact that entrepreneurs remain undeterred by high firmfailure rates. Although data from the U.S. Census Bureau's Business InformationTracking Series show that 60 percent of the businesses launched between 1989and 1992 did not survive six years, founders overconfidently believe that theycan beat the odds of failure. The hubris theory offered here incorporates three separate psychologicalprocesses: overconfidence in knowledge, overconfidence in prediction, andoverconfidence in personal abilities. A detailed discussion of the hubristheory leads to a series of propositions. According to the first twopropositions, founders are most overconfident when faced with highly complex,dynamic tasks related to the new venture. Another proposition suggests that experienced firm founders become moreoverconfident when launching a firm that differs from previous ventures. Thelast few propositions suggest that overconfidence leads indirectly to venturefailure: rather than allocating resources in moderation, overconfident founderseither underestimate their ventures' need for initial resources or commit toomany resources to the project. The study concludes with a discussion of thepotential benefits of overconfidence. (SAA)
Keywords: Optimism, Overconfidence, Psychological traits, Individual traits, Startups, Self-efficacy, Founders, Resource management, Firm survival, Skills
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