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Biased and overconfident, unbiased but going for it: How framing and anchoring affect the decision to start a new venture

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  • Dubard Barbosa, Saulo
  • Fayolle, Alain
  • Smith, Brett R.
Abstract
Cognitive heuristics, biases, and overconfidence have been suggested as an explanation for entrepreneurial entry. Nevertheless, empirical research on the subject has produced mixed findings and has under-explored the cognitive mechanisms leading to overconfidence in entrepreneurial settings. In two within-subject experiments, we focus on three cognitive heuristics—reference point framing, outcome salience framing, and anchoring in conjunctive events—and examine their effects on perceived risk, confidence, required and estimated probabilities of success, and the decision to start a new venture. Our findings show that reference point framing and outcome salience framing affect the decision to enter directly and indirectly via risk perception, but do not affect confidence. In addition, the effect of anchoring is contingent on the congruence between its semantic and its numeric influences. Overconfidence only obtains when the numeric and semantic influences of anchoring are aligned and aimed at enhancing the salience of potential positive outcomes, i.e., through high probabilities of success.

Suggested Citation

  • Dubard Barbosa, Saulo & Fayolle, Alain & Smith, Brett R., 2019. "Biased and overconfident, unbiased but going for it: How framing and anchoring affect the decision to start a new venture," Journal of Business Venturing, Elsevier, vol. 34(3), pages 528-557.
    • Handle: RePEc:eee:jbvent:v:34:y:2019:i:3:p:528-557
    DOI: 10.1016/j.jbusvent.2018.12.006
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    2. Dorian Boumedjaoud & Karim Messeghem, 2020. "Vigilance entrepreneuriale du repreneur externe et mentorat : rôle de l'accompagnement en amont," Post-Print hal-02569210, HAL.
    3. Kraft, Priscilla S. & Günther, Christina & Kammerlander, Nadine H. & Lampe, Jan, 2022. "Overconfidence and entrepreneurship: A meta-analysis of different types of overconfidence in the entrepreneurial process," Journal of Business Venturing, Elsevier, vol. 37(4).
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    7. Yuliya Snihur & Llewellyn D. W. Thomas & Raghu Garud & Nelson Phillips, 2022. "Entrepreneurial Framing: A Literature Review and Future Research Directions," Entrepreneurship Theory and Practice, , vol. 46(3), pages 578-606, May.
    8. Tahseen Anwer Arshi & Asfia Ambrin & Venkoba Rao & Swapnil Morande & Kanwal Gul, 2022. "A Machine Learning Assisted Study Exploring Hormonal Influences on Entrepreneurial Opportunity Behaviour," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 31(3), pages 575-602, November.
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    10. Mariano Puglisi & Vincenzo Fasone & Giulio Pedrini & Deborah Gervasi & Guglielmo Faldetta, 2022. "Using a dual system of reasoning in small businesses: Entrepreneurial decisions and subjective risk intelligence," International Entrepreneurship and Management Journal, Springer, vol. 18(2), pages 529-553, June.
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    More about this item

    Keywords

    Entrepreneurial decision; Overconfidence; Anchoring; Framing; Heuristics;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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