Are Individuals Entering Self-Employment Overly Essay Example

regarding the logic behind entrepreneurial expectations. Specifically, no research has studied how initial expectations of those entering self-employment - known as nascent entrepreneurs - match up with the actual results post-launch. For example, whether they have created a functioning business, made adequate sales, or achieved satisfactory returns from self-employment. Therefore, our comprehension of entrepreneurial expectations and entry is limited. To close this gap of knowledge, the rationality of nascent entrepreneurs' expectations - individuals currently engaged in starting a business - is examined with data from the Panel Study of Entrepreneurial Dynamics (PSED). One unique feature of PSED is that it identifies and surveys nascent entrepreneurs while in the start-up process, mitigating any survivorship or recall bias that might arise from surveying established entrepreneurs (Gartner et al.2004).The PSED conducts a longitudinal survey of individuals engaging in nascent venture activity to compare ex ante expectations with ex post realizations. This overcomes the use of perceptual measures of predictions or outcomes, and provides a powerful sample for investigating overoptimism because of the high uncertainty of the forecasting task and increased cognitive bias amongst entrepreneurs. The study examines the influence of plans and projections used by entrepreneurs on differences in overoptimism. Theoretical economic models explicitly model optimistic or overconfident individuals entering into self-employment, consistent with observed overoptimism. While comprehensive and detailed information analysis is generally considered beneficial when formulating expectations, some information acquisition and use may be ineffective in dampening, or may potentially exacerbate the overoptimistic tendencies of individuals. Authors such as Armor and Taylor, Kahneman and Lovallo, and Zacharakis and Shepherd suggest this.Through this article, I contend that the overconfidence of nascent entrepreneurs can be attributed to their

adoption of an 'inside view' approach to forecasting. The inside view entails focusing on the specific details of the plan, considering obstacles and constructing scenarios of future progress, which leads to the tendency to generate overoptimistic forecasts. Researchers have established that individuals prefer the inside view. This view also leads to the planning fallacy, which fixates decision-makers on the particularities of a problem rather than outcomes from similar situations or base information. As a result, individuals tend to approach their projects with unwarranted confidence despite knowledge of similar ventures having failed before. I have noticed that nascent entrepreneurs tend to be overoptimistic in their expectations and overestimate the likelihood of successfully launching their business. Furthermore, those who do launch often exaggerate future sales and revenue during the first year.