Overconfidence and excess entry summary

Overconfidence and - Andrew Rapaport Econ 505 Overconfidence and Excess Entry Overconfidence and Excess Entry is a paper written on a psychological

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Andrew Rapaport 1-13-09 Econ 505 Overconfidence and Excess Entry “Overconfidence and Excess Entry” is a paper written on a psychological study about how most people are overconfident in their abilities and overly optimistic about their futures. When people rate themselves against their peers on nearly any positive trait a large majority of people say that they are above average. The study set out to see whether or not optimistic biases could affect economic behavior. Empirical studies have shown that most businesses fail within a few years. One hypothesis conjectured that failure was a result of managers being overly optimistic about their own abilities. The hypothesis is plausible because it falls in line with many psychological studies. I believe that the big mistake by managers is that they have a poor reading on revenue models. The first years of a business are hard and survival is based on revenue. If a company projects a million dollars of revenue then they should budget for only $700,000. By doing so the managers are leaving a margin of error for poor
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This note was uploaded on 06/09/2009 for the course ECON 505 taught by Professor Brad during the Spring '09 term at Ohio State.

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Overconfidence and - Andrew Rapaport Econ 505 Overconfidence and Excess Entry Overconfidence and Excess Entry is a paper written on a psychological

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