Risk evaluations among managers and entrepreneurs

The well-known research carried out by Busenitz and Barney (1997) exploring differences in the decision-making processes between entrepreneurs and managers in large organizations has been revisited and redesigned as a starting point to create a computational and theoretical Multi Agent Model (MAM) which shows differences in the decision-making processes. In the original study, researchers showed the presence of a different disposition in incurring in biases and in heuristics by entrepreneurs and managers. In particular, two interesting trend curves on the Overconfidence effect have been realized. Authors concluded by stating that the Overconfidence effect is significantly different in entrepreneurs and managers and helps distinguish between these two work categories. Starting from this conclusion and from their results, a computational and theoretical MAM has been designed, where, as suggested by the authors, different decision-maker agents can incur in the Overconfidence effect with different degrees.  

Research on differences between entrepreneurs and managers in large organizations has usually examined psychological and personal/demographic differences (Favretto & Sartori, 2007). After a great deal of research, it is now generally concluded that most of the psychological differences between entrepreneurs and managers in large organizations are small or nonexistent, although some exceptions exist. For example, such individual psychological attributes as locus of control and risk-taking have been shown not to vary significantly between entrepreneurs and managers in large organizations (Begley & Boyd, 1987; Sexton & Bowman, 1984), but some consistent psychological differences have been documented in need for achievement, tolerance for ambiguity and need for conformity (Begley & Boyd, 1987; Miner et al., 1989). Despite the fact that very few studies have shown statistically significant differences between entrepreneurs and managers in large organizations in their risk-taking propensity (Brockhaus, 1980; Low & MacMillan, 1988), this individual psychological difference continues to be discussed as an important variable for understanding entrepreneurial behavior (Stevenson & Gumpert, 1985; Ray, 1994). The study by Busenitz and Barney (1997) aimed at understanding why entrepreneurs and managers in large organizations may vary in the use of heuristics and biases, by measuring their disposition in incurring in Representativeness and in Overconfidence. Busenitz and Barney (1997) collected a sample from the two populations and, in order to measure the biases, they used two different tasks. To measure Overconfidence, a task extracted from a study by Fischhoff, Slovic, and Lichtenstein (1977) was used. It was composed of a series of questions based on death rates from various diseases and accidents, such as: “Which cause of death is more frequent in the United States? A. Cancer of all types, B. A shark attack”. Respondents had to indicate the level of confidence that they had in their answers on a scale ranging from 50% to 100%. A response of 100% would indicate that they were totally confident that their choice was right. 

Results confirm the hypothesis that entrepreneurs manifest the Overconfidence effect in decision-making processes more extensively than managers in large organizations. They showed how overconfident entrepreneurs are by drawing summary results and combining the correct percentage of responses given and their general level of overconfidence.

 

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