Innovation and Entrepreneurship in the Global Economy
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Innovation and Entrepreneurship in the Global Economy

Knowledge, Technology and Internationalization

Edited by Charlie Karlsson, Urban Gråsjö and Sofia Wixe

Innovation and entrepreneurship are the prime drivers in the global economy. This scholarly book identifies some of the key forces behind innovation and entrepreneurship at the same time as it closes the gap between science and technology R & D, innovation, entrepreneurship, productivity growth, and internationalization. The expert contributions explore the underlying forces and add substantial theoretical and empirical knowledge to the current state-of-the-art in several research fields including the economics of innovation and entrepreneurship, regional economics, economic geography and international economics.
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Chapter 10: When being wrong might be right: on overconfidence as an evolutionary mechanism of nascent entrepreneurs

Martin G.A. Svensson


Empirical regularities regarding start-ups that do not show prolonged longevity have been known for some time. In this chapter, the regularity is argued to originate from an interaction between cognition-laden characteristics of entrepreneurs and contextual conditions. Overconfidence is argued to cause miscalibration of objective probabilities of success, which in turn causes excess entry, but also to negatively affect survival rates. Moreover, overconfidence is argued to be an evolutionary mechanism that helps explain the distribution of entrepreneurs at the local level. It does so by advocating overconfident entrepreneurs to be more likely to beacon personal, but miscalibrated, beliefs to others and thereby set off spillover effects. The bias is therefore argued to be detrimental to actors at an individual level (as it negatively affects survival rates), but favorable at the system level (as it facilitates spillover effects). The concluding discussion of these matters is extended by a discussion of policy issues.

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