Market-Entry Decisions

This paper documents egocentric biases in market-entry decisions. We demonstrate self-focused explanations for entrydecisions made by three groups of participants: actual entrepreneurs (founders), working professionals who considered starting their own firms but did not (nonfounders), and participants in a market-entry experiment. Potential entrants based their decision to enter primarily on evaluations of their own competence (or incompetence) and paid relatively little attention to the strength of the competition. Our results suggest that excess entrepreneurial entry is more complicated than simple overconfidence, and can help explain notable patterns in entrepreneurial entry. Key words: entrepreneurial entry; egocentrism; market entry; overconfidence; underconfidence One of the key contributions of Cyert and March’s (1963) behavioral theory of the firm is the notion that organizations conduct a limited search for information. Organizational decision makers conduct a local search that Cyert and March characterized as “simple-minded” because they “(1) search in the neighborhood of the problem symptom and (2) search in the neighborhood of the current alternative ” (p. 121). They begin by examin-ing the data most readily available for analyzing prob