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Biased Calibration: Exacerbating Instead of Mitigating Entrepreneurial Overplacement with Reference Values

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  • Daniel Blaseg
  • Armin Schwienbacher

Abstract

Nascent entrepreneurs often believe that their chances of success are better than those of others due to imperfect information about the competencies and accomplishments of other entrepreneurs, leading to overplacement. Theory suggests that the provision of historical outcome data of comparable projects could help entrepreneurs develop more realistic plans and expectations by closing the information gap and enabling the calibration of their beliefs. However, effectively calibrating beliefs by incorporating new reference information requires effortful cognitive processing and rational integration of the data, which may be impeded by the same cognitive biases leading to overplacement initially. Drawing from a unique dataset that allows us to observe substantial parts of the planning process of 971 entrepreneurs, we investigate the effectiveness of providing reference values as a debiasing tool. Rather than rationally leveraging the information for honest self-assessment, our findings suggest that entrepreneurs use the information to differentiate themselves even more from the reference group after they see the historical values. This, in turn, results in an even higher level of overplacement. JEL Classifications G41, D91, L26, L25.

Suggested Citation

  • Daniel Blaseg & Armin Schwienbacher, 2024. "Biased Calibration: Exacerbating Instead of Mitigating Entrepreneurial Overplacement with Reference Values," Entrepreneurship Theory and Practice, , vol. 48(5), pages 1131-1159, September.
    • Handle: RePEc:sae:entthe:v:48:y:2024:i:5:p:1131-1159
    DOI: 10.1177/10422587241227051
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    More about this item

    Keywords

    overplacement; debiasing; crowdfunding; decision-making; entrepreneurship;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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