The Impact of Overconfidence on Investors' Decisions

Abstract

Researchers have found that the determinants of entrepreneurial intention (or action) include general, specific, and social aspects of human capital as well as the possession of entrepreneurial attitudes toward income, independence, perquisites, risk and hard work. Recently the cognitive bias of overconfidence has been associated with entrepreneurship, with research showing that entrepreneurs exhibit greater overconfidence than do other managers. Accordingly it is useful to investigate the role of overconfidence in the decision to form an intention to become self-employed. This paper finds that overconfidence significantly drives the intention to behave entrepreneurially, and moreover has significant interaction effects with ownership motivation of nascent entrepreneurs. Interestingly, self-efficacy, and attitudes towards income, autonomy and risk were not significant determinant of intentions in this study, contrary to earlier studies.