Aditya Kothadiya’s Blog

I recently read an article in BusinessWeek about study on entrepreneurial behavior by researcher Brian Wu. As per the studies, the overconfidence in their ability allows them to take the leap and start an innovative venture.

The key observations are as below:

• The general assumption is that entrepreneurs are risk seekers. The reality is they aren’t.
• Rather they are more risk averse compared to normal person, but their over confidence in their abilities compensate their risk aversion
• The risk possibilities can be categorized as below:
• Uncontrollable risks – due to market uncertainties
• Controllable risks – due to uncertainties in individual’s capabilities
• Entrepreneurs, like everybody else hate uncontrollable risks.
• On the other hand, they are overconfident on their capabilities and they think they can control it even in the critical situations. They are certain about their abilities and know that they can produce the results. They think they are above the average.
• Their overconfidence is greater than their risk avoidance. This compensates their risk aversion.
• Warning: Entreprenuers with low capabilities but with high overconfidence are likely to fail in their venture because of their overestimation.

So the bottom line is, gauge your abilities, and accordingly build your overconfidence. It’s not always bad to be overconfident in your abilities.

For more articles in this series, please visit: What makes them Entrepreneurial?