2014
DOI: 10.1016/j.geb.2013.11.001
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How do judgmental overconfidence and overoptimism shape innovative activity?

Abstract: Recent field evidence suggests a positive link between overconfidence and innovative activities. In this paper we argue that the connection between overconfidence and innovation is more complex than the previous literature suggests. In particular, we show theoretically and experimentally that different forms of overconfidence may have opposing effects on innovative activity. While overoptimism is positively associated with innovation, judgmental overconfidence is negatively linked to innovation. Our results in… Show more

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Cited by 70 publications
(57 citation statements)
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“…The Holm, Opper, and Nee (2013) Yangtze Delta study suggests that entrepreneurs were not biased in their estimation of their abilities relative to others, but did, rather, have a preference for competition. Herz, Schunk, and Zehnder (2014) find that surveyed individuals demonstrate overprecision-an underestimation of the true variance of their information-and hence lowered the perceived option value of exploration and reduced incentives to engage in entrepreneurship.…”
Section: Is Inherited Culture Stymying Experimentation?mentioning
confidence: 87%
“…The Holm, Opper, and Nee (2013) Yangtze Delta study suggests that entrepreneurs were not biased in their estimation of their abilities relative to others, but did, rather, have a preference for competition. Herz, Schunk, and Zehnder (2014) find that surveyed individuals demonstrate overprecision-an underestimation of the true variance of their information-and hence lowered the perceived option value of exploration and reduced incentives to engage in entrepreneurship.…”
Section: Is Inherited Culture Stymying Experimentation?mentioning
confidence: 87%
“…This hypothesis was derived from previous proposals that the FPC integrates and extrapolates recent experiences in short-term memory (Ramnani and Owen, 2004;Kovach et al, 2012). In the context of our task, the saliency of an outcome may be determined by the difference between the actually received and the expected payoff (i.e., the prediction error) (Schultz, 1998;Tobler et al, 2006;Hayden et al, 2011a;Hauser et al, 2014). If the rFPC promotes exploration based on salient recent outcomes, then this tendency should be particularly strong following large negative prediction errors (unexpectedly low payoffs) for the highest-paying option and/or for large positive prediction errors (unexpectedly high payoffs) for the two lowerpaying options.…”
Section: Bonus Values Alone Do Not Differentially Affect Choice Behavmentioning
confidence: 95%
“…We thus also look to consider the impacts of bounded rationality in an emerging market context (that of China's large-scale private sector). We do so via the use of the now established construct of managerial overconfidence (Bondt and Thaler, 1994;Herz et al 2014).…”
Section: Introductionmentioning
confidence: 99%