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Small Business Overconfidence

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This is a blog on why we believe and do what we do, why we pretend otherwise, how we might do better, and what our descendants might do, if they don't all die.
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Small Business Overconfidence

Robin Hanson
Sep 23, 2007
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Small Business Overconfidence

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The August Journal of Economic Psychology says that across 18 countries "subjective, and often biased, perceptions have a crucial impact on new business creation." For example, the strongest predictor of who starts a new business is "whether the person believes herself to have the sufficient skills, knowledge and ability to start a business."  But for those who do start a business, the higher such confidence, the lower their "approximate survival chances." Furthermore, "some countries exhibit relatively high rates of start-up activity because their inhabitants are more (over)confident than in other countries."

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Small Business Overconfidence

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Small Business Overconfidence

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Overcoming Bias Commenter
May 15

Michael Sullivan: Great point about entrepreneurs vs. research scientists. I think that you are basically correct, but I have long said the same thing about parents vs. doctors. Judith Rich Harris shows that within cultural norms parenting seems to have no statistically detectable effect on life outcomes, but even if it is fairly easy to have large atypical positive effects on your kids we would expect to see it very rarely because parents, like entrepreneurs, have no barriers to entry (pun sincerely not intended). If even doctors have difficulty conveying statistically significant health benefits in aggregate despite their (fairly poorly chosen) barriers to entry, and despite strong validation on particular medical techniques, I would expect much worse from parents.

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Robin Hanson
May 15

Michael, I don't recall Paul Graham citing any statistics on expected payoffs.

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