UNDERSTANDING ENTREPRENEURSHIP: IMPACT OF OVERCONFIDENCE ON ENTREPRENEURSHIP

Abstract

Economic life is full of uncertainties and only thing that is certain here is that most of it is conducted into the dynamic environment; this brings a question in point though: Why individuals opt for entrepreneurship that involves a good amount of risk, and where there are little or no returns? There are ample research data available to show people are more optimistic when decision is taken under uncertainty and even show overconfidence in the judgement. The relative ability is often overestimated by the overconfident individuals and so probabilistically, their perceptions for their actions seem to be safer to them in comparison to those who show no overconfidence. Interesting findings are shown in the sample of 2,944 entrepreneurs there are as many as 81% people who feel their chances of obtaining success are at least 70%, there are 33% other people with a belief that the probability of 100% exists in terms of their chances of success. The truth is that, as many as 75% new businesses fail to exist after 5 years. Here arises a question that, are the entrepreneurs not in a position to see the risk, or do they carry a different perception of the risk involved in their acts? Going through a recent study, it is clear that the entrepreneurs are very much cautious (even more than what we think) and the opinion that entrepreneurs have more tolerance for risk is considered wrong in the findings. There are few cases though, where entrepreneurs seem to bear less risk than normal, still it does not stop them to take