We study the behavioral drivers of market entry. An experiment allows us to disentangle the impact on entry across different types of markets of two key behavioral mechanisms: overconfidence and attitude toward ambiguity. We theorize and show that the causal effect of overconfidence on entry is limited to skill-based markets and does not appear in those that are chance based. Moreover, we also find that, independent of confidence levels, individuals exhibit ambiguity-seeking behavior when the result of the competition depends on their skills, which, in turn, leads to higher levels of entry. This preference for ambiguity thus can explain results that have previously been attributed to overconfidence. Our results challenge existing literature that has inferred overconfidence from differential entry levels across types of markets.

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The rate at which experimental studies are published in the field of strategy has steadily increased over the past few years. Still, experimental papers account for only a small fraction of strategy papers. This may not come as a surprise given the skepticism surrounding the experimental method, which is often seen as uninterested in establishing external validity, and too “micro” for a field in which the level of analysis is primarily organizational and inter-organizational. Is this skepticism founded? To what extent can experiments be a useful tool for strategy research? To answer this question, we start by examining experimental strategy papers published between 1980 and 2016. Results from the analysis alleviate doubts about the suitability of experimental methods for the study of questions of strategic interest to firms. We next discuss the main advantages associated with the use of experiments and why they make strategy an exciting field in which to be an experimentalist today.

Research Summary In this paper, we develop and test a behavioral theory of lost leadership. Using insights from the literature on goals as reference points and goal‐setting theory, we predict that former leaders exert more effort compared to otherwise identical competitors. We test this prediction using two contexts. The first data comes from an educational business simulation game. The second setting draws on field data from a 2‐month banking sales contest. We find that provision of effort increases following the loss of leadership. We also explore whether past leaders exert more effort in general or shift effort from other, potentially less‐salient goals. We find evidence of both mechanisms. Finally, investigating the temporal effects, we find that having been a leader has an attenuating effect on subsequent behavior. Managerial Summary Many competitions—such as sports championships, sales contests, idea‐sourcing challenges, and competitions for promotions—can be understood as dynamic tournaments, in which rivals rise and fall in the provisional rankings as they compete over time for a terminal prize. This performance volatility can have important consequences for contestants' behavior. Focusing on the event of lost leadership, we show that former leaders try harder: those that are displaced from a prize‐eligible position exert more effort in subsequent rounds, compared with identically placed rivals who have never led. Former leaders provide more effort overall, and also shift attention away from other tasks. Our results, which suggest that setbacks can be motivational, have implications for the optimal design of dynamic competitions.

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