Wisdom or Hubris? Differences in the Three Dimensions of Overconfidence Across Entrepreneurial Experience.

Sammanfattning

People keep starting businesses despite the high probability of failure. This paradox is often blamed on overconfidence, but existing research tends to confound different dimensions of overconfidence into a single, blurry bias. This thesis separates overconfidence into its three distinct dimensions: overestimation, overplacement, and overprecision. The goal is to see if having prior entrepreneurial experience makes you more or less overconfident than those founding a new business without prior experience. Therefore, this study aims to answer the question: how do the three dimensions of overconfidence differ between inexperienced and experienced entrepreneurs? Using a quantitative, cross-sectional research design, data was collected from 56 entrepreneurs (n=22 inexperienced; n=34 experienced). Participants completed a general knowledge trivia quiz designed to measure the three dimensions of overconfidence through self-assessment and performance-based tasks. Statistical analysis was conducted using the Fisher-Freeman-Halton exact test to accommodate the relatively small sample size. The findings reveal that none of the three hypotheses were supported at the .05 significance level. However, several critical insights emerged. The results for overestimation were nearly significant, suggesting that experience helps a person calibrate their expectations over time. However, a bigger sample is needed to confirm this. On the other hand, we measured a massive amount of underplacement. Nearly 80% of the founders thought they were worse than the average previous participant. This seems to be a case of the hard-easy effect, where a difficult task makes even the most confident person doubt their relative standing compared to others. Lastly, we observed remarkably high overprecision. Almost everyone in the sample, from inexperienced to experienced entrepreneurs, showed a high level of certainty in their own accuracy. This suggests that certain types of overconfidence might not be a bias that experience fixes, but rather a stable trait that helps people deal with the ambiguity of starting a company. Ultimately, our work highlights why we should stop treating overconfidence as a single construct if we want to understand the biases that lead to both entrepreneurial entry and failure.