Entrepreneurial overconfidence and ambiguity aversion: dealing with the devil you know, than the devil you don't know

Abstract

Various empirical studies find that entrepreneurs are systematically overconfident in their venture's probabilistic chances of success. Yet, entrepreneurs often face an ambiguous future that precludes them from making such probabilistic judgements. A theoretical framework based on ambiguity aversion is developed to explain an entrepreneur's overconfidence under complex and novel conditions of ambiguity. Unlike optimistic explanations, this ambiguity-averse form of overconfidence offers a non-probabilistic approach to entrepreneurial judgements of uncertainty.

Keywords:

• ambiguity aversion
• cognitive/biases

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributor

Desmond Ng is an associate professor of agribusiness and strategic management. He teaches the application of strategic management principles to food businesses and agribusiness systems at the undergraduate and graduate levels of instruction. A focus of his research programme is to examine strategic issues at multiple levels of analysis that span intra-firm, firm, inter-firm and market-level processes. More recent developments also include the examination of not only cognitive decision processes but also moral issues involved in ethical decision-making.