Making sense of overconfidence in market entry
Article first published online: 8 NOV 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 36, Issue 1, pages 1–18, January 2015
How to Cite
Cain, D. M., Moore, D. A. and Haran, U. (2015), Making sense of overconfidence in market entry. Strat. Mgmt. J., 36: 1–18. doi: 10.1002/smj.2196
- Issue published online: 16 DEC 2014
- Article first published online: 8 NOV 2013
- Accepted manuscript online: 23 SEP 2013 11:49AM EST
- Manuscript Accepted: 3 JUL 2012
- Manuscript Revised: 8 JUN 2012
- Manuscript Received: 21 JAN 2009
- market entry;
- social comparison;
Entrepreneurs are often described as overconfident (or at least very confident), even when entering difficult markets. However, recent laboratory findings suggest that difficult tasks tend to produce underconfidence. How do entrepreneurs maintain confidence in difficult tasks? Our two laboratory experiments and one archival study reconcile the literature by distinguishing types of overconfidence and identifying what type is most prominent in each type of task. Furthermore, we critically examine the notion that ‘overconfidence’ explains excess market entry: we find that entry into different markets is not driven by confidence in one's own absolute skill, but by confidence in one's skill relative to that of others. Finally, we consider whether overconfidence in relative skill is driven by neglecting competitors or by systematic errors made when considering them. Copyright © 2013 John Wiley & Sons, Ltd.