Risk assessment is a fundamental process for the long-term success of organizations and businesses. Indeed, in these contexts, biases may arise that influence the process of identifying, evaluating, and prioritizing risks (Koller et al., 2012). Therefore, to ensure the accuracy of risk assessments in organizational contexts, it is crucial to recognize the presence of potential heuristics and biases that may influence the results.
The current line of research aims to study and optimize risk assessment in the context of coordination roles, such as managers and entrepreneurs. Busenitz & Barney (1997) provided the theoretical foundation that demonstrated differences in decision-making processes between entrepreneurs and managers in large organizations. Research on such differences has typically examined psychological and personal or demographic differences (Favretto & Sartori, 2007). Recent literature has concluded that most psychological differences between entrepreneurs and managers in large organizations appear to be small or nonexistent, although there are some exceptions. For example, individual psychological traits such as locus of control and risk-taking do not differ significantly (Begley and Boyd, 1987; Sexton and Bowman, 1984), but some differences have emerged in consistent psychological dynamics such as need for success, tolerance for diversity, and need for conformity (Begley and Boyd, 1987; Miner et al., 1989). Although few studies have shown statistically significant differences between entrepreneurs and managers in large organizations (Brockhaus, 1980; Low & MacMillan, 1988), individual psychological differences continue to be discussed as critical variables in understanding entrepreneurial behavior (Stevenson & Gumpert, 1985; Ray, 1994).
Busenitz & Barney’s (1997) study seeks to understand why entrepreneurs and managers in large organizations may differ in their use of heuristics and biases (mental shortcuts and biases that our brains use to simplify and speed up decisions) by measuring their propensity to incur representativeness and overconfidence. Busenitz & Barney (1997) collected a sample of managers and entrepreneurs to measure bias and used two different tasks. To measure overconfidence, they used a task adapted from a study by Fischhoff, Slovic & Lichtenstein (1977), which consisted of a series of questions based on mortality rates, e.g., “What is the most common cause of death in the United States? The results confirmed the hypothesis that entrepreneurs manifest the overconfidence effect in decision making more than managers. Therefore, they demonstrated how overconfident entrepreneurs are by plotting summary scores and combining the percentage of correct answers with their overall level of overconfidence. The practical implications of these studies are the possibility of carrying out additional tests to detect situations of excessive overconfidence and the implementation of specific training to optimize decision-making processes.
Begley, T.M., Boyd, D.P.: Psychological characteristics associated with performance in entrepreneurial firms and smaller businesses. Journal of Business Venturing 2, 79–93 (1987)
Brockhaus, R.H.: Risk taking propensity of entrepreneurs. Academy of Management Journal 23, 509–520 (1980)
Bruine de Bruin, W., Parker, A.M., Fischhoff, B.: Individual differences in adult decision-making competence. Journal of Personality and Social Psychology 92(5), 938 (2007)
Busenitz, L.W., Barney, J.B.: Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making. Journal of Business Venturing 12(1), 9–30 (1997)
Fischhoff, B., Slovic, P., Lichtenstein, S.: Knowing with certainty:The appropriateness of extreme confidence.Journal of Experimental Psychology: Human Perception and Performance 3, 552–564 (1977)
Low, M.B., MacMillan, I.C.: Entrepreneurship: Past research and future challenges. Journal of Management 14(2), 139–161 (1988)
Miner, J.B., Smith, N.R., Bracker, J.S.: Role of entrepreneurial task motivation in the growth of technologically innovative firms. Journal of Applied Psychology 74(4), 554–560 (1989)
Jay, D.M.: The role of risk-taking in Singapore. Journal of Business Venturing 9(2), 157–177 (1994)
Sexton, D.L., Bowman, N.: The effects of pre-existing psychological characteristics on new venture initiations. Paper Presented at the Annual Meeting of the Academy of Management, Boston, MA (1984)Google Scholar Stevenson, H.H., Gumpert, D.E.: The heart of entrepreneurship. Harvard Business Review 63(2), 85–94 (1985)