Search results

This paper aims to develop a conceptual framework on how the representativeness heuristic operates in the decision-making process. Specifically, the authors unbundle representativeness into its building blocks: search rule, stopping rule and decision rule. Furthermore, the focus is placed on how individual-level cognitive and behavioral factors, namely experience, intuition and overconfidence, affect the functioning of this heuristic.

From a theoretical standpoint, the authors build on dual-process theories and on the adaptive toolbox view from the “fast and frugal heuristics” perspective to develop an integrative conceptual framework that uncovers the mechanisms underlying the representativeness heuristic.

The authors’ conceptualization suggests that the search rule used in representativeness is based on analogical mapping from previous experience, the stopping rule is the representational stability of the analogs and the decision rule is the choice of the alternative upon which there is a convergence of representations and that exceeds the decision maker's aspiration level. In this framework, intuition may help the decision maker to cross-map potentially competing analogies, while overconfidence affects the search time and costs and alters both the stopping and the decision rule.

The authors develop a conceptual framework on representativeness, as one of the most common, though still poorly investigated, heuristics. The model offers a nuanced perspective that explores the cognitive and behavioral mechanisms that shape the use of representativeness in decision-making. The authors also discuss the theoretical implications of their model and outline future research avenues that may further contribute to enriching their understanding of decision-making processes.

This study investigates the relationship between the Chief Executive Officer's (CEO) overconfidence and financial reporting complexity in Iran, a context characterized by weak corporate governance and heightened managerial discretion.

The sample consists of 1,445 firm-year observations from 2010 to 2021. CEO overconfidence (CEOOC) is evaluated using an investment-based index, specifically capital expenditures. Financial reporting complexity (Complexity) is measured through textual features, particularly three readability measures (Fog, SMOG and ARI) extracted from annual financial statements. The ordinary least squares (OLS) regression is employed to test the research hypothesis.

Results suggest that CEOOC is positively related to Complexity, leading to reduced readability. Additionally, robustness analyses demonstrate that the relationship between CEOOC and Complexity is more distinct and significant for firms with lower profitability than those with higher profitability. This implies that overconfident CEOs in underperforming firms tend to increase complexity. Also, firms with better financial performance present a more positive tone in their annual financial statements, reflecting their superior performance. The findings remain robust to alternative measures of CEOOC and Complexity and are consistent after accounting for endogeneity issues using firm fixed-effects, propensity score matching (PSM), entropy balancing approach and instrumental variables method.

This study adds to the literature by delving into the effect of CEOs' overconfidence on financial reporting complexity, a facet not thoroughly investigated in prior studies. The paper pioneers the use of textual analysis techniques on Persian texts, marking a unique approach in financial reporting and a first for the Persian language. However, due to the inherent challenges of text mining and feature extraction, the results should be approached with caution.

The insights from this study can guide investors in understanding the potential repercussions of CEOOC on financial reporting complexity. This will assist them in making informed investment decisions and monitoring the financial reporting practices of their invested companies. Policymakers and regulators can also reference this research when formulating policies to enhance financial reporting quality and ensure capital market transparency. The innovative application of textual analysis in this study might spur further research in other languages and contexts.

This research stands as the inaugural study to explore the relationship between CEOs' overconfidence and financial reporting complexity in both developed and developing capital markets. It thereby broadens the extant literature to include diverse capital market environments.

In a work environment marked by unprecedented complexity, volatility and ambiguity, managers must accomplish their objectives while navigating many challenges. This paper aims to investigate potential interrelations among environmental transformations, cognitive biases and strategic decisions. In particular, the purpose of the study is to crystallize the state of art on the impact of cognitive biases on strategic decisions, in the context of environmental transformations.

The authors have conducted a systematic literature review to identify existing relevant work on this topic and to detect potential avenues for future research.

The findings highlight how decision-making is influenced and enabled by internal (e.g. perception) and external factors (e.g. digitalization). Specifically, the strategic role of cognitive biases appears to be crucial when investigating the related impact on strategic decisions in times of environmental transformation.

Implications are drawn for scholars and practitioners interested in evaluating the role of specific decision-making determinants for the formation and implementation of strategic decisions. In this sense, we stress that decision-makers need to manage their cognitive biases and select the right information out of a wide data set in order to adapt to environmental transformations.

By systematizing the literature review, potential interrelations among environmental transformations, cognitive biases and strategic decisions are identified. Furthermore, the primary phases that drive the decision-making process are proposed (analysis, decision, onboarding and control).

There has been significant growth in entrepreneurship research over the past several decades. Yet with all of the knowledge gained and presumably improved training of would-be entrepreneurs, firm failure rates remain persistently high. It is argued here that the historical and continued research focus on successful entrepreneurs has limited the field. Entrepreneurs are often considered to possess uniquely positive capabilities relative to the general population; this paper explores the possibility that the majority of entrepreneurs suffer from overconfidence and that this leads most entrepreneurs to make “bad bets” that result in underperformance and firm failure.

In this paper, a qualitative review of the literature was performed.

Based on the literature review, three formal propositions are developed. The first two suggest that the majority of entrepreneurs are overconfident in their personal capabilities and the prospects for their new ventures. It is then proposed that this overconfidence leads to errors in judgment that results in financial underperformance and failure found among most new ventures.

This paper makes an important contribution to the entrepreneurship literature by arguing that overconfidence negatively impacts pre-founding decision-making such that entrepreneurs pursue flawed opportunities. Studying the issues raised in this paper may spur new lines of research and knowledge that lead to better entrepreneurial outcomes.

Decision-making competence (DMC) of entrepreneurs and managers is a longstanding topic in this increasingly globalized world. These figures operate in conditions not within their own control, and good levels of DMC are often considered to be desirable for the flourishing of business and society. This paper reports an empirical investigation on the DMC of entrepreneurs and managers, in an attempt to inform about their tendencies to incur in risky and costly choices.

Three cognitive biases associated with operational strategies and individual characteristics of entrepreneurs and managers, namely under/overconfidence (UOC, i.e. self-confidence in taking decisions), resistance to sunk costs (RSC, i.e. propensity to take cost investments) and consistency in risk perception (CRP, i.e. how well individuals understand probability rules) were considered . Cognitive biases measures were used in a cross-sectional study on a sample of n = 639 entrepreneurs and n = 512 managers. Data collected via online survey were analyzed using descriptive statistics and inferential statistics to determine differences among entrepreneurs and managers DMC.

Analyses reveal that entrepreneurs exhibit higher levels of UOC compared to managers with a marked presence of UOC among entrepreneurs at younger ages. Conversely, performance regarding RSC improves with higher education levels while age and RSC are positively correlated only for managers, regardless of education. Lastly, entrepreneurs and managers resulted as not being affected by CRP. This study discusses these results to provide initial insights for further avenues of research and practice.

The study offers an innovative, evidence-based viewpoint on how entrepreneurs and managers deal with risky and costly decisions. It offers an initial understanding of the role of UOC, RSC and CRP, that is specific cognitive biases associated with operational strategies and individual characteristics, in the DMC of these working figures. The study forwards avenues of scrutiny of quick-witted entrepreneurs and systematic managers.

The purpose of this paper is to examine the role of founding team experience (industry and venturing) in new venture creation. This paper posits the following questions: How does founding team experience influence the likelihood of new venture creation, in the nascent stage? How does industry context moderate this relationship? The study aims to fill an important gap in the literature by unpacking the impact of different types of founding team experiences on venture outcome, and by focusing on the influence of founding team in the venture creation process, specifically at the nascent stage.

The paper utilizes data from the Second Panel Study of Entrepreneurial Dynamics, a longitudinal data set of 1,214 nascent entrepreneurs in the USA. Logistics regression was employed to analyze the effect of founding team experience on new venture creation. Post hoc analysis was conducted to ensure the confidence of the findings.

The paper provides empirical insights about how founding team experience influences the likelihood of new venture creation in the nascent stage. At the nascent stage, founding team industry experience positively affects new venture creation while founding team venturing experience does not. However, in the high-technology industry environment, the influence of the founding team’s venturing experience on new venture creation is stronger than that in the low-technology industry environment.

Due to the design of the data set, there is a risk of “right-censoring” problem. Also, because the study used archival data on founding teams, the methodology did not allow for uncovering the underlying team processes and dynamics during the venture creation process based on learning from experience. Future studies are encouraged to examine other types of founding team experience and the underlying process-level factors on venture creation.

The paper provides important practical implications for nascent entrepreneurs/entrepreneurial teams on team assembling and composition. In general, a team with higher-level industry experience is critical for venturing success. A team with higher-level venturing experience is more desired in the high-technology industry.

This paper fulfills an important gap in the entrepreneurial team literature by highlighting the complex and nuanced ways in which founding team experience influences the likelihood of venture creation in the nascent stage of the firm, especially after incorporating the additional impact of the industry context.

People’s tendency to overestimate their ability to control random events, known as illusion of control, can affect financial decisions under uncertainty. This study developed an artifactual field experiment on illusion of control for a farm machinery investment.

In an experiment with two treatments, the individual farmer was either given or not given a sense of control over a random outcome. After each decision, the authors elicited perceived control, and a questionnaire collected additional indirect measures of illusion of control from 78 German farmers and 10 farm advisors.

The results did not support preregistered hypotheses of the presence of illusion of control. This null result was robust over multiple outcomes and model specifications. The findings demonstrate that cognitive biases may be small and difficult to replicate.

The sample is not representative for the German farming population. The authors discuss why the estimated treatment effect may represent a lower bound of the true effect.

Illusion of control is well-studied in laboratory settings, but little is known about the extent to which farmers’ behavior is influenced by illusion of control.

This study aims to examine the role of the dimensions of entrepreneurial orientation (EO) under turbulent market conditions and reveal the role of an entrepreneur's perception of a crisis in shaping the impact of EO on firm performance.

This study uses partial least squares structural equation modeling (PLS-SEM), multiple linear regression (MLR) and fuzzy-set qualitative comparative analysis (fsQCA). The study sample was comprised of 117 one- and two-star hotels that were operating in Poland.

The results showed that proactiveness and risk-taking significantly affected firm performance. Furthermore, the results revealed that an entrepreneur's perception of a crisis moderated the impact of risk-taking and proactiveness on firm performance. In particular, the findings suggested that, in firms where the crisis strongly influenced their operations, performance was affected by proactiveness, while in those firms where the crisis influenced their operations to a low or moderate degree, performance was affected by risk-taking. Furthermore, fsQCA unveiled the role of innovativeness, which (along with risk-taking) is a sufficient condition that leads to firm performance.

Two characteristics make this study original: first, it investigates EO under turbulent market conditions, and second, it analyzes the role of an entrepreneur's perception of crisis consequences for business operations. The study contributes to the literature on entrepreneurship and crisis management with findings on the different roles of EO dimensions under crisis conditions and an observation about the moderating role of an entrepreneur's perception of the impact of a crisis on operational management and how this perception differentiates the impact of risk-taking and proactiveness on firm performance.

The purpose of this paper is to understand how illusion of control (IOC) can affect the implementation of formal processes of environmental scanning in organizations.

Based on the proposed research question, an exploratory study was chosen, which could collaborate with future studies. There were conducted three semi-structured interviews with CEOs working in medium/large technology companies.

Behavioral traits were identified—such as overconfidence and underestimation of risks—which are directly related to the IOC’s theory. The belief that there is no added value to the company in adopting organizational strategic processes—such as environmental scanning—answers the research question and contributes to the development of new studies.

This study has as limitation the fact that it proposed the interviews to an inexpressive number of respondents, exclusively with the intention to explore better the relation between the IOC and the formal processes of environmental scanning.

This research advances the understanding of the difficulty in adopting formal environmental scanning practices in organizations. It can also help understand the motivations of executives for adopting (or not adopting) such practices. Finally, it is possible to know and understand the individual approach to environmental scanning, as well as its limitations.

This research discusses the themes of IOC and environmental scanning, demonstrating how cognitive factors can affect strategic decision making in an organization. Although the IOC is well-developed in the field of psychology, it can be very helpful in understanding business management and executive behavior.

This study aims to investigate the relationship between shared leadership (SL) and decision quality, utilizing shared leadership theory (SLT) and behavioral decision theory (BDT). The authors will explore the mediating role of “decision comprehensiveness” in the SL–decision quality linkage. Additionally, the authors will examine how individual “self-leadership” and “debate” among team members moderate the relationship between SL and decision comprehensiveness.

The authors tested the hypothesized moderated mediation model using a sample of 506 professionals employed in 112 research and development (R&D) teams, along with their direct managers from large Italian firms. To examine the relationships, the authors employed confirmatory factor analyses and path analyses. In order to address endogeneity concerns, the authors incorporated an instrumental variable, namely delegation, into the analysis.

SL positively influences decision quality, mediated by decision comprehensiveness, where teams include comprehensive information in decision-making. The level of debate among team members positively moderates the SL–decision comprehensiveness relationship. High levels of self-leadership can harm SL by reducing decision comprehensiveness, indicating a downside. However, low or moderate levels of self-leadership do not harm decision comprehensiveness and can even benefit SL.

This is the first work to investigate the relationship between SL and decision quality, shedding light on the mechanisms underlying this association. By integrating SLT and BDT, the authors provide insights into how managers can make higher-quality decisions within self-leading teams. Moreover, this research makes a distinct contribution to the field of self-leadership by delineating its boundaries and identifying a potentially negative aspect within the self-influence process.