Optimism, overconfidence and entrepreneurial activity

Rose Trevelyan (School of Organisation and Management, Australian School of Business, Sydney, Australia)

Management Decision

ISSN: 0025-1747

Publication date: 1 August 2008

Abstract

Purpose

This paper aims to explore the question of confidence in entrepreneurship, and the impact confidence has on key tasks in the venture development process.

Design/methodology/approach

Propositions about the relationship between key elements of confidence (optimism and overconfidence) are made in order to unpack the confidence construct. Simple tests of these propositions are conducted using a small sample of Australian entrepreneurs. Further propositions are made about the impact of optimism and overconfidence on activity across different phases of the new venture development process.

Findings

Two elements of confidence, optimism and overconfidence, are distinct in their association with each other and with a third individual difference (regulatory focus). The dual and sometimes opposing impacts of optimism and overconfidence on new venture activity are explored. Optimism and overconfidence are both beneficial when deciding to become an entrepreneur, but overconfidence is harmful when making decisions in response to setbacks.

Research limitations/implications

Conclusions are limited by the sample size and simple analytical techniques. Rather, the impact of the paper is in the implications of the independence of optimism and overconfidence. Future research can explore and test the propositions made about when each is harmful and when beneficial.

Practical implications

For entrepreneurs, it is important to be aware of your optimism and overconfidence in different situations. When optimism is beneficial, use it, but when overconfidence is harmful, mitigate against it by asking the right questions and working with others to check assumptions and strategies.

Originality/value

This paper distinguishes between two individual differences, optimism and overconfidence, that are typically thought to be interdependent and beneficial for entrepreneurs.

Keywords

Citation

Trevelyan, R. (2008), "Optimism, overconfidence and entrepreneurial activity", Management Decision, Vol. 46 No. 7, pp. 986-1001. https://doi.org/10.1108/00251740810890177

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited

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