A Hubris Theory of Entrepreneurship

Authors:
Mathew L. A. Hayward;Dean A. Shepherd;Dale Griffin
Affiliations:
Leeds School of Business, University of Colorado at Boulder, Boulder, Colorado 80309-0419;Kelley School of Business, Indiana University, 1309 East Tenth Street, Bloomington, Indiana 47405;Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, British Columbia, Canada V6T 1Z2
Venue:
Management Science
Year:
2006

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Abstract

This paper develops a hubris theory of entrepreneurship to explain why so many new ventures are created in the shadow of high venture failure rates: More confident actors are moved to start ventures, and then act on such confidence when deciding how to allocate resources in their ventures. Building on theory and evidence from the behavioral decision-making literature, we describe how founders socially constructed confidence affects the manner in which they interpret information about their prior and current ventures. We then link founders propensity to be overconfident to their decisions to allocate, use, and attain resources. In our model, founders with greater socially constructed confidence tend to deprive their ventures of resources and resourcefulness and, therefore, increase the likelihood that their ventures will fail.