Behavioral “Entrepreneurship”

Overconfidence:

sample of 2,994 entrepreneurs, 81% believe their chances of success are at least 70%, and 33% believe their chances are a certain 100%. In reality, about 75% of new businesses no longer exist after five years (Cooper, Woo, and Dunkelberg, 1988)

Information revelation to social group and exploration of opportunities:

overconfident entrepreneurs (independent spirits, innovators, leaders, change agents, or even dissidents) are relatively less likely to imitate their peers and more likely to explore their environment. Entrepreneurial activity can thus provide valuable additional information to their social group (Bernardo and Welch, 2001); based on information cascades and herding (Welch, 1992; Banerjee, 1992; Bikchandani, Hirshleifer, and Welch, 1992). => benefits to the group much larger than cost to individuals => evolutionary advantage of groups with overconfident individuals (group selection at the cross-road of behavioral economics and rational economics)

Tradeoff between informational externality and entrepreneurial attrition