Two Sources of Overconfidence: Incorporating Disconfirming Feedback in an Entrepreneurial Context

The prevalence of overconfidence when making entrepreneurial decisions has led scholars to theorize about its consequences. Some argue that it will have positive ramifications, while others disagree. The question at the core of this debate is: Will highly overconfident individuals considering starting a venture be able to correct initial misconceptions? We help resolve this controversy by conducting a correlation study in a controlled setting. The answer is complex and dependent upon one’s source of overconfidence. Even at equal levels of high overconfidence, individuals who reached that level by intentionally processing additional evidence, as compared to those who naturally have a tendency toward high overconfidence, were less likely to revise erroneous beliefs. In contrast, surprisingly, the level of overconfidence was not associated with a willingness to change from an incorrect belief to a correct one. No other study that we know of has examined whether the process by which an individual becomes overconfident matters. This omission is critical because studies focus on one process, yet implicitly assume their findings will generalize to others. Our results suggest this may not be the case.