"I Think I Can, I Think I Can": Overconfidence and Entrepreneurial Behavior

Philipp Köllinger, Maria Minniti and Christian Schade
Authors registered in the RePEc Author Service: Philipp Koellinger

No 501, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Many firms fail shortly after inception. Yet individuals continue starting businesses. Prewar economists such as Keynes invoked animal spirits and stressed psychological factors in their explanations of economic behavior. Using a large sample obtained from surveys conducted in 18 countries, we study what variables have a significant impact on an individual's decision to start a business. We find strong evidence that subjective, and often biased, perceptions have a crucial impact on new business creation across all countries in our sample. Our findings are consistent with the idea that individuals rely significantly on their perceptions rather than on objective probabilities, evaluate their businesses prospects by taking an overconfident "inside view" of their situation, and, as a result, overestimate their likelihood of success.

Keywords: Entrepreneurship; Self-employment; Perceptions; Perceptual variables; Overconfidence (search for similar items in EconPapers)
JEL-codes: D1 J29 M13 (search for similar items in EconPapers)
Pages: 31 p.
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: "I think I can, I think I can": Overconfidence and entrepreneurial behavior (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp501

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