Confidence Spillovers: Evidence from Entrepreneurship

Abstract

Evaluating the market for potential entrepreneurs, we test whether interacting with confident agents encourages entry into competitive environments. Under an experimental setting, we find that young managers confident in their entrepreneurial potential, despite no prior experience, increase the likelihood their peers become entrepreneurs or join startups. As our results are driven by less confident individuals, primarily women, starting businesses, these firms perform no worse than other new firms. Through multiple surveys, we verify treated managers report increased entrepreneurial confidence, and reject alternative explanations including increased entrepreneurial knowledge and risk tolerance. Our results support a theory of entrepreneurship where individuals evaluate their potential relative to nearby peers rather than the population.