Businesspeople Who Are Too Sure Of Their Abilities Are Less Savvy Entrepreneurs: New Study

May 13, 2008

Apprentice-style entrepreneurs who have an inflated sense of their own abilities may jump into new business ventures with insufficient regard for the competition and the size of the market, new research has found.

Psychologists say that people who are so ‘full of themselves’ and cocksure of their own abilities are the ones most likely to venture into markets that may be too small to accommodate another profitable business.

Research led by the University of Leicester, funded by the Economic and Social Research Council, has shown that overconfidence among businesspeople is a reason why many ventures fail in the first few years.

And the ones most culpable were people with absolute confidence in their own abilities.

The study was conducted by Dr Briony Pulford and Professor Andrew Colman of the University of Leicester, in collaboration with Dr Fergus Bolger, formerly of the University of Durham. The results are published in the journal Experimental Psychology (Volume 55, No. 2, 2008).

They set up a ‘game’ that simulated market conditions. Participants stood to gain capital, or make a loss, based on decisions they made in different market scenarios. The players had to choose whether or not to open restaurants given different market scenarios, using a combination of skill and luck in order to perform.

Dr Pulford, of the School of Psychology at the University of Leicester, who led the study, claimed that people should beware of overconfidence: “Our results showed that, when success depended on skill, overconfidence tended to cause excess entry into a market place, as has been predicted by previous psychological theories.

“Market entry decisions tend to be over-optimistic, with the inevitable result that new business start-ups tend to exceed market capacity, and many new businesses fail within a few years.”

“However, the results also showed that excess entry into a given market place was driven by absolute confidence, rather than confidence arising merely from comparing oneself with others. Another finding was that excess entry was much more frequent when market capacity was small, suggesting that entrepreneurs do not take sufficient account of market capacity.

“Our findings have practical implications for people starting new businesses. They should beware of overconfidence, and they should be especially wary when entering small markets or markets that seem to present easy business opportunities, because over-entry seems most likely in these circumstances.”

Source: University of Leicester

Explore further: Diabetes pill might replace injection to control blood sugar

Related Stories

Diabetes pill might replace injection to control blood sugar

October 17, 2017
(HealthDay)— An injectable class of diabetes medication—called glucagon-like peptide-1 or GLP-1—might one day be available in pill form, research suggests.

Workplace menopause study finds 'women feel they need to cope alone'

August 4, 2017
A call for more menopause-friendly workplaces is made in a new Government report prepared by a team from the University of Leicester.

Study reveals gap in the market for wearable technologies that monitor sedentary behaviour

September 1, 2016
Sedentary behaviour monitoring is under-represented in the wearable tech market, a new study has found.

Pokemon Go could ease Type 2 diabetes burden

July 25, 2016
Leading diabetes researchers believe smartphone craze Pokémon Go could be an "innovative solution" to rising obesity levels and chronic disease.

New test to help brain injury victims recover

October 21, 2014
A dynamic new assessment for helping victims of trauma to the brain, including those suffering from progressive conditions such as dementia, has been developed by a clinical neuropsychologist at the University of Leicester.

NASA's moon landing remembered today as a promise of a 'future which never happened'

October 4, 2013
NASA's footage of the first moon landing promised a future of sci-fi heroism that never came to pass, according to a new study.

Recommended for you

Probing how Americans think about mental life

October 20, 2017
When Stanford researchers asked people to think about the sensations and emotions of inanimate or non-human entities, they got a glimpse into how those people think about mental life.

Itsy bitsy spider: Fear of spiders and snakes is deeply embedded in us

October 19, 2017
Snakes and spiders evoke fear and disgust in many people, even in developed countries where hardly anybody comes into contact with them. Until now, there has been debate about whether this aversion is innate or learnt. Scientists ...

Inflamed support cells appear to contribute to some kinds of autism

October 18, 2017
Modeling the interplay between neurons and astrocytes derived from children with Autism Spectrum Disorder (ASD), researchers at University of California San Diego School of Medicine, with colleagues in Brazil, say innate ...

Study suggests psychedelic drugs could reduce criminal behavior

October 18, 2017
Classic psychedelics such as psilocybin (often called magic mushrooms), LSD and mescaline (found in peyote) are associated with a decreased likelihood of antisocial criminal behavior, according to new research from investigators ...

Taking probiotics may reduce postnatal depression

October 18, 2017
Researchers from the University of Auckland and Otago have found evidence that a probiotic given in pregnancy can help prevent or treat symptoms of postnatal depression and anxiety.

Schizophrenia disrupts the brain's entire communication system, researchers say

October 17, 2017
Some 40 years since CT scans first revealed abnormalities in the brains of schizophrenia patients, international scientists say the disorder is a systemic disruption to the brain's entire communication system.

1 comment

Adjust slider to filter visible comments by rank

Display comments: newest first

Bbrhuft
not rated yet May 13, 2008
This seems like confirmation of the Dunning Kruger Effect - a condition exhibited by some people who are too stupid to recognise their own stupidity. Does the effect extend to politicians?

If this research is true, the most over confident self-promoting idiot would be voted into office. I wonder if it happened already? Oh, it has ... Bush & "excess entry into" Iraq. The failing of Iraq, was due to a vast over optimism at the outset the point of self-delusion.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.