Eristic reasoning: Adaptation to extreme uncertainty

Heuristics (shortcut solution rules) can help adaptation to uncertainty by leading to sufficiently accurate decisions with little information. However, heuristics would fail under extreme uncertainty where information is so scarce that any heuristic would be highly misleading for accuracy-seeking. Thus, under very high levels of uncertainty, decision-makers rely on heuristics to no avail. We posit that eristic reasoning (i.e., self-serving inferences for hedonic pursuits), rather than heuristic reasoning, is adaptive when uncertainty is extreme, as eristic reasoning produces instant hedonic gratifications helpful for coping. Eristic reasoning aims at hedonic gains (e.g., relief from the anxiety of uncertainty) that can be pursued by self-serving inferences. As such, eristic reasoning does not require any information about the environment as it instead gets cues introspectively from bodily signals informing what the organism hedonically needs as shaped by individual differences. We explain how decision-makers can benefit from heuristic vs. eristic reasoning under different levels of uncertainty. As a result, by integrating the outputs of formerly published empirical research and our conceptual discussions pertaining to eristic reasoning, we conceptually criticize the fast-and-frugal heuristics approach, which implies that heuristics are the only means of adapting to uncertainty.

A Noisy Theory of Asking for Help That Explains why Many Feel Underwhelmed With the Help They Receive

Employees often feel that the help they receive at work is inadequate. Whereas previous research explains this empirical finding by referencing stereotypes or poor communication, we suggest an alternative that does not rely on biased agents: disappointment with received help may arise due to self-selection and regression to the mean. Before asking for help, employees assess whether their co-workers have the time and ability to respond. Consistent with regression to the mean, extreme beliefs are often followed by less extreme outcomes. However, employees with inflated beliefs are more likely to ask for help than employees with low or modest beliefs. Therefore, the subset of employees who act will have overly optimistic expectations, expectations that are unlikely to be met once co-workers respond. Apart from challenging conventional wisdom, this article also integrates chance and self-selection perspectives into the ongoing dialogue of help-seeking. Implications for future research, theory, and practice are discussed.

Plain Language Summary

This article presents a theory explaining the following empirical regularity: employees often feel let down with the help they receive at work. Prior research explains this effect by referencing errors in communication or cognition. We propose a simple, alternative mechanism, such that cognitive biases or communication mishaps need not be present for the pattern to emerge. Suppose employees ask for help based on a noisy signal of colleague potential—that is, a perception of whether co-workers have the motivation and ability to resolve the issue. Employees who believe potential is high will be more likely to ask for help than employees who believe potential is low. Due to regression to the mean, extreme beliefs will likely be followed by less extreme received help (in either direction). But not every employee asks for help. Only those with sufficiently high beliefs send a request—and it is those employees who have a greater chance of holding inflated assessments. Among those who ask, then, received help will appear underwhelming. Apart from challenging conventional wisdom, this article also integrates chance and self-selection perspectives into the ongoing dialogue of help-seeking. Implications for future research, theory, and practice are discussed.

The Effect of Chief Executive Officer and Board Prior Corporate Social Responsibility Experiences on Their Focal Firm’s Corporate Social Responsibility: The Moderating Effect of Chief Executive Officer Overconfidence

This research aims to examine how the prior experiences of the chief executive officer (CEO) and board influence the focal firm’s Corporate Social Responsibility (CSR) activities. Further, the present study examines how CEO overconfidence influences the diffusion of CSR activities. The authors theorize that overconfident CEOs are influenced more by the corporate strategies they experienced on other boards and less by the corporate strategies experienced by other directors. Through longitudinal analyses of the CSR profiles a sample of S&P 500 companies for the period 2006-2013, the study shows that CEO and board prior CSR experience are positively related to the firm’s current CSR activities. The authors find a significant positive moderating effect of CEO overconfidence on the relationship between CEO prior CSR and the focal firm’s CSR. The theory and results highlight how CEO and board prior CSR exposure may influence the focal firm’s stances toward CSR and that CEO overconfidence may have differential effects on these relationships.

Self-Confidence of Venezuelan Migrant Entrepreneurs in Colombia

This study determines the personality and behavioural factors related to pull motivation that explains the self-confidence of Venezuelan migrant entrepreneurs. Using a quantitative approach, this study conducted a survey with 88 migrants who own productive units in the urban area of Gramalote, North of Santander, in Colombia. This study examines the association between the variable ‘perception of having self-confidence’ with demographic and motivational contextual factors. Fisher’s exact test was used to determine the evidence of a statistically significant association between the variables. The findings of the multivariate multinomial logistic regression model suggest that the factors related to a high level of self-confidence are gender, perception of ability to take advantage of opportunities, perception of demanding efficiency and quality and perception of taking risks. These factors are to be considered in the policies of the Colombian state regarding education programmes and the formalisation of the labour market with a gender approach in a post-pandemic context. Given that the COVID-19 pandemic caused a crisis in countless aspects, one of which was in the labour market, this study is relevant because it analyses self-confidence as a driver of entrepreneurial development.

Entrepreneurial Leadership and Entrepreneurial Success: The Role of Knowledge Management Processes and Knowledge Entrepreneurship

Various leadership styles have been widely studied to understand success. However, little research has empirically explored how entrepreneurial leadership (EL) influences entrepreneurial success (ES). Moreover, the role of knowledge management processes (KMPs) and knowledge entrepreneurship (KE) have been overlooked. Thus, using a knowledge-based view theory, this study aims to determine the relationship between EL and ES, mediated through KMPs. In addition, for a better understanding, the study also used KE as a moderator. A quantitative survey method has been employed to collect data from 390 entrepreneurial venture (EV) owners, co-founders, and managers in tech-oriented ventures (IT and Software-based) operating in Pakistan. Smart partial least squares (PLS) statistical software was used to analyze the impact mechanism of EL on ES through the structural equation model. The findings revealed that EL style positively influences ES. In addition, KMPs fully mediate the relationship between EL and ES. Furthermore, KE as a moderator, strengthens the relationships between EL and the knowledge management process. Theoretically, this study has complemented and enriched research on the influence mechanism between EL and ES. Practically, this study has important implications for leaders, managers, and founders to promote KMPs to achieve ES.

Failing to Learn from Failure: How Optimism Impedes Entrepreneurial Innovation

Extant research shows that entrepreneurs are typically overly optimistic about their ventures’ prospects and that such optimism hampers performance. We analyze how dispositional optimism affects the adjustments to entrepreneurs’ expectations after they receive negative feedback on their task performance. We then explore the relationship between optimism and the effectiveness of innovation. Exploiting unique firm-level data and a laboratory experiment involving 205 entrepreneurs, we find that dispositional optimism is negatively associated with both the likelihood and extent of belief updating in response to negative feedback. Furthermore, dispositional optimism triggers a discrepancy—between innovation inputs and outputs—that reduces a firm’s innovation effectiveness.

The Valuator’s Curse: Decision Analysis of Overvaluation and Disappointment in Acquisition

Initial valuations of entrepreneurial ventures offering uncertain payoffs can often be overvalued by investors; namely, the expected payoff postacquisition is smaller than the expected payoff prior to acquisition when the investor harbors uncertainties about various components of the business. Common explanations involve irrationality such as psychological preference for potential over realized payoffs. We provide a different, rational explanation, which we term the valuator’s curse. It is similar in nature to the winner’s curse in auctions and the optimizer’s curse in decision analysis, but the source of the curse is neither from the competitive effects of an auction-type mechanism nor from the optimization effects in a choice among alternatives. Rather the effect is generated from the nonlinear evaluation of the payoffs, even though the inputs to the evaluation are unbiased. We formalize the valuator’s curse and discuss its implications to entrepreneur’s learning. The valuator’s curse proves a boon to the entrepreneur as it leads to larger capitalizations.

Research on Factors Affecting the Entrepreneurial Learning From Failure: An Interpretive Structure Model

Based on the interpretive structure model of system dynamics, this paper constructs a hierarchical structure model of factors affecting the entrepreneurial learning from failure, which has been also tested through a case of entrepreneurship. The study finds that: (1) there are 15 factors influencing entrepreneurial learning from failure that play different hierarchical roles; (2) the entrepreneurs' self-efficacy, as a key influencing factor of entrepreneurial learning from failure, can be cultivated and improved by enriched the entrepreneurs' successful career experience. In addition, emotion regulation after the entrepreneurial failure is also a key influencing factor of the entrepreneurial learning from failure and the emotion management is deemed as an important part of entrepreneurship education; (3) the entrepreneurial education may affect the entrepreneurship learning from failure indirectly by affecting the entrepreneurs' self-efficacy; (4) the economic conditions, the policy support, the industry characteristics and the cultural sensemaking of failure are the macro factors that may affect the entrepreneurship learning from failure.

What Determinants Influence Students to Start Their Own Business? Empirical Evidence from United Arab Emirates Universities

What factors influence students to start their own business? What are the implications at the university level? This paper aims to answer to these questions and investigates, at a micro level (university), the motivation for entrepreneurial intentions among students in 10 universities from the United Arab Emirates (UAE). An online inquiry has been conducted among 500 students between April and June 2018, and 157 fully completed questionnaires were retained. Factor Analysis with Varimax (with Kaizer Normalization) rotation and logistic regression were used to identify what factors motivate students to start their own business and, from those factors, which one is determinant in this decision. Also, age and parental self-employment status were used to determine the influence of these factors. Four factors have been identified as determinants for students to start their own business: entrepreneurial confidence, entrepreneurial orientation, university support for entrepreneurship, and cultural support for entrepreneurship. Surprisingly, the only factor significantly correlated with the intention in starting a business is entrepreneurial confidence. This factor becomes even stronger when it is associated with age (20–25 years old) and parents’ self-employment status. These conclusions involve specific challenges on the university level, related to the role of entrepreneurial education and on country level, in link with the effectiveness of governmental programs to enhance entrepreneurial endeavours. Further research can explore and test these findings on a representative sample for the UAE, and for other countries.

"Yes, we know!" (Over)confidence in general knowledge among Austrian entrepreneurs

Overconfidence has been reported to be a common bias among entrepreneurs and might be one cause of the high failure rates observed for new ventures. In this study, we investigate the overconfidence bias in a sample of 92 Austrian entrepreneurs, who responded to a general-knowledge questionnaire. Their levels of overconfidence were assessed by their responses to hard, medium and easy knowledge questions, and the relations of individual, organizational and environmental factors to the bias score were analyzed. The results confirmed that entrepreneurs are indeed prone to expressing overprecision, a type of overconfidence, but not when answering questions of all levels of difficulty. Being a single founder instead of a co-founder was identified as a significant predictor of overconfidence. Confidence, on the other hand, was associated with age and prior entrepreneurial experience, while accuracy was determined solely by age. The results of this study only partly agree with those of previous studies conducted in different national and cultural settings.

Good Choice, Bad Judgment: How Choice Under Uncertainty Generates Overoptimism

We examine a fundamental feature of choice under uncertainty: Overestimating an alternative makes one more likely to choose it. If people are naive to this structural feature, then they will tend to have erroneously inflated expectations for the alternatives they choose. In contrast to theories of motivated reasoning, this theory suggests that individuals will overestimate chosen alternatives even before they make their choice. In four studies, we found that students and managers exhibited behavior consistent with naïveté toward this relationship between estimation error and choice, leaving them overoptimistic about their chosen alternatives. This overoptimism from choosing positive error is exacerbated when the true values of the alternatives are close together, when there is more uncertainty about the values of alternatives, and when there are many alternatives to choose from. Our results illustrate how readily overoptimism emerges as a result of statistical naïveté, even in the absence of a desire to justify one's decision after the choice.

A pessimistic view of optimistic belief updating

Received academic wisdom holds that human judgment is characterized by unrealistic optimism, the tendency to underestimate the likelihood of negative events and overestimate the likelihood of positive events. With recent questions being raised over the degree to which the majority of this research genuinely demonstrates optimism, attention to possible mechanisms generating such a bias becomes ever more important. New studies have now claimed that unrealistic optimism emerges as a result of biased belief updating with distinctive neural correlates in the brain. On a behavioral level, these studies suggest that, for negative events, desirable information is incorporated into personal risk estimates to a greater degree than undesirable information (resulting in a more optimistic outlook). However, using task analyses, simulations, and experiments we demonstrate that this pattern of results is a statistical artifact. In contrast with previous work, we examined participants' use of new information with reference to the normative, Bayesian standard. Simulations reveal the fundamental difficulties that would need to be overcome by any robust test of optimistic updating. No such test presently exists, so that the best one can presently do is perform analyses with a number of techniques, all of which have important weaknesses. Applying these analyses to five experiments shows no evidence of optimistic updating. These results clarify the difficulties involved in studying human 'bias' and cast additional doubt over the status of optimism as a fundamental characteristic of healthy cognition.

Sustainability in start-up ventures: what founders say versus what they do

Purpose

– Although founders of start-up ventures seem to hold similar views about ethical, social, and environmental principles as those in large firms, entrepreneurs tend to be focussed on their immediate stakeholders, including customers, employees, suppliers, and investors. The purpose of this paper is to compare founders’ views – “what they say” – about sustainable business practices to their described business models – “what they do.”

Design/methodology/approach

– An opinion survey of prospective business start-up founders, along with a content analysis of their business plans, is used to compare founders’ views – “what they say” – about sustainable business practices to their described business models – “what they do.”

Findings

– Findings suggest that prospective business founders do value sustainable business practices. However, the content of their business models does not reflect their espoused importance of sustainability.

Research limitations/implications

– The main limitation of this study is that university students in a business-planning course were used as surrogates for actual start-up venture founders. That being the case, a small percentage (just under 5 percent) of the students indicated at the end of the course that they would like to continue pursuing the venture they helped develop a business plan for. To address this, future research should focus on actual founders of new ventures.

Practical implications

– The content analysis of the business plans revealed a marked disconnect between the high-value founders reported to place on sustainability and the actual limited inclusion of sustainability in their business models. Therefore, more work needs to be done to educate, encourage, and coach start-up founders to raise their awareness of and desire to include sustainability as key parts of their business models.

Originality/value

– To date, no studies have attempted to compare start-up venture founders’ views – “what they say” – about sustainable business practices to their described business models – “what they do.”

El impacto diferenciado de la autoconfianza, los modelos de referencia y el miedo al fracaso sobre los jóvenes emprendedores

El objetivo principal de este trabajo es determinar el efecto que la autoconfianza en las habilidades emprendedoras y algunas variables socio-culturales (los modelos de referencia y el estigma social al fracaso) ejercen sobre la actividad emprendedora de los jóvenes en España. Con tal finalidad se realiza un modelo de regresión logística para eventos extranos, utilizando la base de datos GEM-España de 2009, con una muestra de 24.099 personas. Los resultados más importantes indican que los jóvenes son más emprendedores que las personas mayores. Además, los resultados muestran que la autoconfianza y el estigma social al fracaso empresarial tienen un efecto diferenciado sobre la probabilidad emprendedora de jóvenes espanoles.

Perspective—Chance Explanations in the Management Sciences

We propose that random variation should be considered one of the most important explanatory mechanisms in the management sciences. There are good theoretical reasons to expect that chance events strongly impact organizational behavior and outcomes. We argue that models built on random variation can provide parsimonious explanations of several important empirical regularities in strategic management and organizational behavior. The reason is that random variation in a structured system can give rise to systematic patterns at the macro level. Here, we define the concept of a chance explanation; describe the theoretical mechanisms by which random variation generates patterns at the macro level; outline how key empirical regularities in management can be explained by chance models; and discuss the implications of chance models for theoretical integration, empirical testing, and management practice.