Most Common Entrepreneurial Decision Making Biases

Abstract

Entrepreneurs are responsible for a great deal of innovation in societies and decision making is an indispensable part of entrepreneurial processes. Entrepreneurs are responsible to discover, recognize and make the most of opportunities (Schumpeter,1935). They need to have access to and gather adequate information to make right and on-time decisions. Entrepreneurs face complex and ambiguous decision making situations and show biases in their time-consuming decision making processes.  There has been sufficient evidence that entrepreneurs don't follow rational decision making patterns (Harky and Stumpf,1989). Entrepreneurs, more or less, have this propensity to some extent. A lot of reasons have been identified for this deviations from rational decision making processes, such as the high cost of rational decision making(Simon,1979), limitations in information processing(Abelson and Levi,1985), differences in their styles and procedures(Shafer,1986), or information overload, environmental complexity, and environmental uncertainty (Baron,1998).  These biases affect some important aspects of entrepreneurs’ businesses greatly. Researchers have shown great interests in entrepreneurial decision making and cognitive biases. Overconfidence, Illusion of control, Hindsight Bias, Planning Fallacy and some other major biases have been hypothesized as been common among entrepreneurs.  The main goal of this study is  to find out the most common  entrepreneurial decision making biases by an elaborate review of entrepreneurial decision making biases research history and then examining the findings by interviewing entrepreneurs founding and managing a high-tech company. After analyzing 25 interviews elaborately, it was concluded that Overconfidenc and Illusion of Control are the most common decision making bias among entrepreneurs.