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Two decades of cognitive bias research in entrepreneurship: What do we know and where do we go from here?

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Abstract

The study of entrepreneurial cognitive bias emerged about two decades ago and has received growing attention in entrepreneurial research. However, this is the first comprehensive review of the studies published in this field and therefore describes the current state of the art of cognitive bias research in entrepreneurship. This paper identified a total of 54 relevant articles and structures them by a typology of bias. It shows that a considerable number of articles cover overoptimism and overconfidence, while limited attention has been given to other biases such as illusion of control, the belief in the law of small numbers, escalation of commitment, planning fallacy, status quo bias, self-serving bias, and hindsight bias. Results of this review show that studies examining overoptimism and overconfidence have delivered most consistent results. The focus of the review lies on logically structuring the body of research by assessing the key issues in the determinants and in the consequences of each bias and thereby identifying a range of new research opportunities. Special emphasis was placed on incorporating insights from conceptual papers.

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Notes

  1. There are many other variables that influence the decision to become an entrepreneur, including differences in personalities, prior knowledge and experience, social networks, and market conditions (Schade and Koellinger 2007; Shepperd et al. 1996; Xie 2014). However, previous researchers argue that these variables do not explain the volitional nature of entrepreneurship, for example, why out of hundreds who are laid off only one person starts a venture (Shaver and Scott 1991; Simon et al. 2000).

  2. There is no clear-cut distinction between the terms overoptimism and overconfidence in entrepreneurship research. Some authors refer to overconfidence to describe overoptimistic behavior, such as the overestimation of expected returns or the overestimation of success (Hayward et al. 2006; Kahneman and Tversky 1995). However, I adopt the definition of the term overconfidence from the above mentioned literature stream (e.g. Åstebro et al. 2007; Busenitz and Barney 1997; Koellinger et al. 2007; Simon et al. 2000; Trevelyan 2008),where overconfidence refers to the individual’s self-perception rather than an overall measure of belief in the expected occurrence of positive outcomes.

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Appendix

Appendix

Formula used for keyword search in the EBSCOhost research tool:

(TI (“entrepreneu*”) or AB (“entrepreneu*”) or SU (“entrepreneu*”)) AND (TI (“cognitive bias*” or “overoptimism” or “overoptimis*” or “optimistic” or “optimism” or “overconfidence” or “overconfident*” or “illusion of control” or “law of small numbers” or “representativeness” or “planning fallacy” or “escalation of commitment” or “sunk cost” or “status quo” or “self-serving” or “hindsight”) OR AB (“cognitive bias*” or “overoptimism” or “overoptimis*” or “optimistic” or “optimism” or “overconfidence” or “overconfident*” or “illusion of control” or “law of small numbers” or “representativeness” or “planning fallacy” or “escalation of commitment” or “sunk cost” or “status quo” or “self-serving” or “hindsight”) OR SU (“cognitive bias*” or “overoptimism” or “overoptimis*” or “optimistic” or “optimism” or “overconfidence” or “overconfident*” or “illusion of control” or “law of small numbers” or “representativeness” or “planning fallacy” or “escalation of commitment” or “sunk cost” or “status quo” or “self-serving” or “hindsight”))

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Thomas, O. Two decades of cognitive bias research in entrepreneurship: What do we know and where do we go from here?. Manag Rev Q 68, 107–143 (2018). https://doi.org/10.1007/s11301-018-0135-9

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