Abstract

Knowledge overconfidence (KO), one of the most common cognitive biases, occurs when the certainty that one knows specific facts exceeds the accuracy of that knowledge (Busenitz & Barney, 1997; Forbes, 2005). Entrepreneurs have been found to be especially vulnerable to KO (e.g., Forbes, 2005; Malmendier & Tate, 2005; Busenitz & Barney, 1997). However, the performance implications of KO for entrepreneurs are unclear. On one hand, some scholars argue that the performance ramifications of overconfidence may be positive in certain settings since KO can improve decision-making efficiency in rapidly shifting environments (e.g., Busenitz & Barney, 1997). Others argue that KO will lead entrepreneurs to act on faulty information (e.g., Sykes & Dunham, 1995), thereby allocating resources to high-risk projects (Hayward, Shepherd, & Griffin, 2007) because they failed to conduct important upfront research (Mahajan, 1992). In either case, entrepreneurship scholars generally agree that success depends upon the ability of the entrepreneur to be open to ongoing feedback. What is less clear, however, is whether the cognitive effort associated with an intensive search process that may lead to overconfident entrepreneurs decreases cognitive flexibility producing cognitive entrenchment (Dane, 2010; Chi, 2006; Lewandowsky & Kirsner, 2000; Lewandowsky, Little, & Kalish, 2007).

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