Hubris theory of entrepreneurship
Mathew Hayward and colleagues (2006) introduce a hubris theory of entrepreneurship. Their aim is to explain why so many new ventures are started despite a very high background failure rate . After all, most businesses fail within the first few years of founding. So why do entrepreneurs keep trying to create new ones? The theory hangs on the idea of confidence . More confident individuals have the bravado to be able to start businesses and allocate resources in challenging situations, while less confident individuals may not be moved to start ventures or grow them. Individuals overestimate the personal wealth they may attain by starting new ventures. The theory assumes that individuals have information about their likelihood of success, but think that they can beat the odds. Hayward and colleagues suggest that overconfident individuals may harm their ventures by depriving them of resources. Thus, while overconfidence may help in starting a venture, it does not help much with operating a...