The Heuristic of Representativeness and Overconfidence Bias in Entrepreneurs

Abstract This study investigated the existence of the representativeness heuristic and the manifestation of overconfidence in entrepreneurs. The use of representativeness and the manifestation of overconfidence were measured with an online questionnaire answered by 62 entrepreneurs; the results were compared to a control group of 63 business managers. The respondents were randomly chosen from the business network of a business incubator at the Federal University of Rio de Janeiro. The data were analyzed with statistical tests and their respective confidence curves. The results of the research indicate that entrepreneurs and business managers demonstrate representativeness and overconfidence in their judgment processes. No significant differences were identified, but the evidence was somewhat stronger in the group of entrepreneurs. The results of this study prompt reflections on the use of heuristics and biases in the judgment and decision-making processes regarding business creation and management. More specifically, angel investors and venture capitalists who consider the results of this research in their business models may improve their rates of success.