IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/2213.html
   My bibliography  Save this paper

Entry Mistakes, Entrepreneurial Boldness and Optimism

Author

Listed:
  • Brocas, Isabelle
  • Carrillo, Juan D

Abstract

We analyze the investment decision of a population of time inconsistent entrepreneurs who overweight current payoffs relative to future returns. We show that, in order to avoid inefficient procrastination, agents may find it optimal to keep optimistic priors about their chances of success and 'blindly invest'. This explains entrepreneurial boldness and entry mistakes (or an excessive level of investment in the economy) without assuming the existence of boundedly rational, 'intrinsically optimistic' managers. We also prove that: (i) there is a negative correlation between the risk free rate and theproportion of bold entrepreneurs in the economy, (ii) realist and bold agents can coexist and achieve the same payoff and (iii) entrepreneurs with highest ability are most likely to keep optimistic prospects and make entry mistakes.

Suggested Citation

  • Brocas, Isabelle & Carrillo, Juan D, 1999. "Entry Mistakes, Entrepreneurial Boldness and Optimism," CEPR Discussion Papers 2213, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2213
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2213
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Battaglini, Marco & Benabou, Roland & Tirole, Jean, 2005. "Self-control in peer groups," Journal of Economic Theory, Elsevier, vol. 123(2), pages 105-134, August.
    2. Caillaud, Bernard & Jullien, Bruno, 2000. "Modelling time-inconsistent preferences," European Economic Review, Elsevier, vol. 44(4-6), pages 1116-1124, May.
    3. Brocas, Isabelle & Carrillo, Juan D., 2000. "The value of information when preferences are dynamically inconsistent," European Economic Review, Elsevier, vol. 44(4-6), pages 1104-1115, May.
    4. Henry, Ruby, 2013. "Business, Bankruptcy, and Beliefs: The Financial Demise of NBA Stars," IZA Discussion Papers 7238, Institute of Labor Economics (IZA).
    5. Aviad Heifetz & Yossi Spiegel, 2000. "On the Evolutionary Emergence of Optimism," Discussion Papers 1304, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Tirole, Jean, 2002. "Rational irrationality: Some economics of self-management," European Economic Review, Elsevier, vol. 46(4-5), pages 633-655, May.
    7. Rubinstein, Ariel, 2001. "A theorist's view of experiments," European Economic Review, Elsevier, vol. 45(4-6), pages 615-628, May.
    8. Brocas, Isabelle & Carrillo, Juan D, 1999. "On Rush and Procrastination," CEPR Discussion Papers 2237, C.E.P.R. Discussion Papers.
    9. Wang Peng & Heng-fu Zou, 2012. "Capital Accumulation And Present-biased Preference," CEMA Working Papers 531, China Economics and Management Academy, Central University of Finance and Economics.

    More about this item

    Keywords

    Behavioural Finance; Boldness; Investment; Optimism; Time Inconsistency;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2213. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.