Heuristics and Cognitive Biases in Entrepreneurs: A Review of The Research

Journal of Small Business & Entrepreneurship
ISSN: 0827-6331 (Print) 2169-2610 (Online) Journal homepage: http://www.tandfonline.com/loi/rsbe20
Heuristics and cognitive biases in entrepreneurs: a

review of the research
Pierre Cossette
To cite this article: Pierre Cossette (2014) Heuristics and cognitive biases in entrepreneurs:
a review of the research, Journal of Small Business & Entrepreneurship, 27:5, 471-496, DOI:
10.1080/08276331.2015.1105732
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Download by: [Orta Dogu Teknik Universitesi] Date: 14 January 2016, At: 11:02
Journal of Small Business & Entrepreneurship, 2015
Vol. 27, No. 5, 471 496, http://dx.doi.org/10.1080/08276331.2015.1105732
Heuristics and cognitive biases in entrepreneurs: a review

of the research
Pierre Cossette*

Ecole des sciences de la gestion, Universit ebec a Montr
e du Qu eal, Qu
ebec, Canada
(Received 4 December 2014; accepted 3 October 2015)
Downloaded by [Orta Dogu Teknik Universitesi] at 11:02 14 January 2016
The aim of this research is to highlight the main characteristics of empirical studies
into the heuristics and cognitive biases of entrepreneurs, and to determine what could
and should now be done. To review past research, we used ProQuest and the 31
databases to which it gave us access. Only 25 empirical papers were identified, mostly
published since 2006. Among other things, the findings from these papers show that
overconfidence and optimism, two biases often confused, are those that have received
by far the most attention from researchers. Factors explaining or explained by them
were highlighted. The only other biases to have received attention, albeit limited, were
the law of small numbers, the illusion of control, the planning fallacy, escalation of
commitment, the status quo bias, and the hindsight bias. Research on heuristics was
rare, but the findings suggest that they tend to vary according to the context (stage in
the entrepreneurial process, activity sector, country, etc.). As for the methodologies,
most were structured around a synchronic design. A broad range of samples and data
collection techniques were used, but analysis was mainly statistical. The findings
suggest that the focus in future should be on which heuristics and biases are most used
or present in a given context (and why), how they are formed and configured, and how
to deal effectively with them. More in-depth studies would also be useful.
Keywords: heuristics; biases; entrepreneur; systematic review; decision-making
L’objectif de la presente recherche est de mettre en evidence les principales

caracteristiques des travaux empiriques sur les heuristiques et biais cognitifs des
entrepreneurs et, consequemment, de determiner ce qui pourrait et devrait maintenant
^etre fait. Pour tracer un tel bilan, nous avons eu recours a ProQuest et aux 31 bases de
donnees auxquelles il nous a donne acces. Seulement 25 travaux empiriques ont ete
reperes, la majorite d’entre eux publies depuis 2006. Les resultats montrent notamment
que les chercheurs ont surtout concentre leur attention sur les biais d’exces de confiance
et d’optimisme, deux biais souvent confondus. Les seuls autres biais a avoir fait l’objet
d’une attention, bien que tres limitee, sont la loi des petits nombres, l’illusion de
contr^ole, le biais de planification, l’escalade dans l’engagement, le biais du statu quo
et le biais de retrospective. Les rares travaux empiriques portant sur les heuristiques
adoptees par les entrepreneurs suggerent qu’ils auraient tendance a varier selon
le contexte (phase du processus entrepreneurial, secteur d’activite, pays, etc.). Quant
aux cadres methodologiques, ils reposent le plus souvent sur un devis synchronique,
mais les echantillons et les techniques de collecte de donnees sont d’une grande variete;
l’analyse est generalement statistique. Ces resultats laissent penser que la recherche
devrait s’orienter vers quelles heuristiques et quels biais sont le plus souvent utilises ou
presents dans tel contexte (et pourquoi), comment ils se forment et se transforment
et comment composer avec eux. Plus d’etudes en profondeur sont requises.
Mots cles:: heuristiques; biais; entrepreneur; revue systematique; prise de decision
*Email: cossette.pierre@uqam.ca
Ó 2015 Journal of the Canadian Council for Small Business and Entrepreneurship/Conseil de la PME et de l’entrepreneuriat
472 P. Cossette
This research focuses on heuristics and cognitive biases. It falls within the scope of a
stream of research based on the limitations of the traditional prescriptive decision-making
model, clearly highlighted since the work of Simon and of March (see in particular Simon
1947; March 1978; March and Simon 1958); among other things, when faced with a prob-
lem constructed in an uncertain context, it is simply impossible to envisage every possible
option and every imaginable consequence of each option. Any solution will therefore be
‘satisfactory’ as opposed to ‘optimal’ and, according to the table prepared by Shah and
Oppenheimer (2008, 215), the process leading to this satisfactory solution is itself a heuris-
tic. Having said this, although perfect rationality is far-fetched and so-called ‘limited’
rationality is more realistic, decision-makers often apply an analytical process that they
attempt to make as rational as possible, and necessarily use heuristics, whether consciously
or not. Moreover, the use of heuristics by decision-makers, including entrepreneurs, based
on their past experience, can often be highly relevant, if only because of the time saved
and the opportunities seized as a result. Almost every author who has written about heuris-
tics has made this point. However, heuristics can also generate cognitive biases that may
result in doubtful or even catastrophic decisions biases that are often characterized by
overestimation or underestimation of the probability that an event will occur.
Many researchers have considered these heuristics and cognitive biases, especially
since the work of Tversky and Kahneman, who published a fundamental paper in Science
in 1974. In the specific field of administrative knowledge, strategic management research-
ers such as Schwenk (1984) have made some remarkable contributions. Since the late
1990s, and especially since the work of Busenitz and Barney (1997), Baron (1998), and
Simon, Houghton, and Aquino (2000), there has apparently been some significant interest
in the study of the heuristics and cognitive biases of entrepreneurs.
However, despite the efforts of authors such as Mitchell et al. (2002) to summarize
what has been done so far, little is still known, both generally and specifically, about
what empirical studies of the heuristics and cognitive biases of entrepreneurs have taught
us so far. And yet, empirical work is very important, given that, in many respects, it is the
only work that can really be regarded as research, i.e. as an investigation leading to
results based on quantitative or qualitative, primary or secondary field (or laboratory)
data collected within a very specific methodological framework (Cossette 2009). This is
not to deny the wealth of the so-called conceptual (or theoretical) texts; we are simply
acknowledging that the essays, analyses, and other proposals they present in favor of a
central idea (e.g. a new theory or model) must not be confused with the findings from the
empirical work on which they are often based, extensively in most cases. Recently,
Colquitt (2013) supported this idea when he said that: ‘Strictly speaking, theory papers
do not “find” or “show” anything: it takes empirical data to do that’ (1222); in this
respect, empirical work can be regarded as constituting the foundation of knowledge,
although such work might be strongly influenced by conceptual work.
In short, we do not have a clear and complete picture of the current state of knowledge
generated by empirical works into the heuristics and cognitive biases of entrepreneurs. To
date, there has been no systematic, exhaustive review of empirical studies into this sub-
ject, carried out using a rigorous methodological framework. A detailed, in-depth review
of research findings and the methods used to produce them would certainly help in appre-
ciating the work done so far and identifying what could be done in the future. It would
also help, eventually, to understand how entrepreneurs face some of the problems they
encounter, so that they can be given more appropriate support, and so that many of the
problems linked to the use of heuristics or the presence of cognitive biases can be
prevented.
Journal of Small Business & Entrepreneurship 473
The aim of this research is therefore to highlight the main characteristics of empirical
texts on the heuristics and cognitive biases of entrepreneurs. More specifically, the basic
purpose of the synthesis and analysis presented here is to review the findings from previ-
ous research, and identify the procedures used to produce those findings (design, sample,
data collection, and analysis techniques). The discussion will focus principally on what
has not yet been done, and on the research programs or avenues that are needed in future
to study the heuristics and cognitive biases of entrepreneurs.
Before presenting the main aspects of the methodology used for this research, we will
begin by considering the often confused notions of heuristic and cognitive bias, and the
lack of consensus on the lists and classifications they have generated. This will show that
our research can hardly be based on a robust and well-established reference framework,
and that the adoption of an inductive approach is more appropriate.
Notions of heuristic and cognitive bias

Heuristics are rules or strategies that simplify the decision-making process. At some point
or another, human beings, whether consciously or not, and perhaps inevitably, given that
perfect rationality is impossible, will use these rules or strategies in their decisions when
conditions are uncertain (i.e. when it is difficult to forecast the future) or complex (i.e.
when there is a large volume of information to be processed). These strategies consist in
ignoring certain information so as to make the decision more quickly or more easily (or
even to make a better decision) than would be the case if they used one of the more com-
plicated methods (Gigerenzer and Gaissmaier 2011) generally associated with the tradi-
tional classical decision-making model that supposedly produces the best decisions. Even
more specifically, heuristics are mental shortcuts or rules of thumb which, as Shah and
Oppenheimer (2008) pointed out, are designed to reduce the effort of performing a task,
basically by considering less information in the process.
Tversky and Kahneman (1974) stated that ‘these heuristics are quite useful, but some-
times they lead to severe and systematic errors’ (1124), or ‘errors in prediction or
estimation’ (1130) which they refer to as biases. This suggests that heuristics are a reflec-
tion of mental processes or cognitive approaches, while biases are products or results that
are cognitive in nature. In the academic literature, biases, normally presumed to be cogni-
tive, are usually regarded as errors of reasoning, or more specifically as information proc-
essing errors, that have the effect of distorting or deforming the decision-maker’s
judgment and appreciation of reality. It is also presumed that the use of heuristics does
not necessarily lead to bias. Lastly, the possibility that biases may emerge directly from
sources other than the use of heuristics has rarely been suggested; in other words, the
potential impact of other factors, such as personality traits, on the development of cogni-
tive biases has not received enough attention. However, we must recognize that some
works have highlighted the link between personality and biases via heuristics. For exam-
ple, Haley and Stumpf (1989) have shown that personality styles proposed by Jung
(sensing-thinking, sensing-feeling, intuition-thinking, and intuition-feeling) lead to differ-
ent heuristics which, in turn, could give rise to particular biases.
In the classical approach to decision-making, a cognitive bias leads, strictly speaking
or by definition, to a decision that is not rational because it is not based on valid or perfect
information. However, this does not mean that the biased decision will have observable
negative consequences, as pointed out by Bazerman (1990, 39), who said that: ‘… the
results are affected by a variety of factors outside the direct control of the decision
makers.’
474 P. Cossette
These notions of heuristic and bias are often confused or, at least, are not always dis-
tinguished. However, this was not the case in the entrepreneurship literature of the early
1990s, when researchers focused almost exclusively on heuristics and the word ‘bias’
was almost never used or even evoked (see in particular the theoretical works of Shaver
and Scott in 1991 and of Katz in 1992). From the late 1990s onwards, the concept of bias
began to emerge, but the ambiguous nature of the two notions was clear. For example,
Busenitz and Barney (1997) defined bias and heuristic (always presented in that order,
which some may find illogical) as: ‘decision rules, cognitive mechanisms, and subjective
opinions people use to assist in making decisions’ (12). They added that, in their research,
‘the term “bias and heuristics” is used to refer to these simplifying strategies that individ-
uals use to make decisions, especially in uncertain and complex conditions’ (12). Just
before this, Busenitz and Lau (1996) had proposed a cultural model of venture creation
containing, to use their own terms (27), four ‘heuristics’: availability, representativeness,
anchoring, and, oddly, overconfidence, even though this so-called heuristic is usually
referred to as a cognitive bias.
Baron (1998) is another author who did not make a distinction between heuristics and
biases. In fact, he did not use the term ‘heuristic,’ preferring ‘cognitive mechanisms’ to
refer to processes likely to give rise to biases or errors. These latter two terms were some-
times treated as though they were synonymous (linked by the conjunction or), and some-
times as though they were separate concepts (linked by the conjunction and). According to
Baron, there were at least five, and possibly more, mechanisms that could play a major role
in an entrepreneurial context: counterfactual thinking, in other words, the tendency to
imagine what could have happened if the entrepreneur had acted in a different way, espe-
cially in cases of failure, potentially hindering the entrepreneur by making him or her regret
not having acted differently or having missed a ‘golden opportunity’; affect infusion, in
other words the influence on thoughts and decisions of emotions unrelated to the situation;
self-serving bias or the tendency to ascribe success to our own effort, skills or other internal
factors, and to ascribe failure to other people’s behaviors, misfortune or other external fac-
tors; planning fallacy, or the tendency to underestimate the time needed to do something
and overestimate what can be done in a given period of time; and, lastly, self-justification
and escalation of commitment, in other words, the tendency to justify decisions even when
the results are negative, and to continue to invest, time, effort and money in lost causes.
Simon, Houghton, and Aquino (2000), after asserting that ‘cognitive biases are com-
mon types of mental shortcuts used to make judgments’ (113), apparently without realizing
that this is how heuristics are usually defined, acknowledged later (115) that biases ‘may
emanate’ from heuristics. In a paper published two years later, Simon and Houghton
(2002) noted that some authors used the terms ‘cognitive bias’ and ‘cognitive heuristic’
indiscriminately to refer to empirical rules or decision shortcuts, while they themselves
regarded biases as potential errors resulting from the shortcuts. Indeed, while they admitted
that entrepreneurs could exhibit many biases, they nevertheless proposed that illusion of
control, belief in the law of small numbers (which they described as merely a ‘special case’
of the representativeness heuristic), and analogical reasoning may be the most common.
Bryant (2007) took a ‘naturalistic’ view in which heuristics are regarded as effective
decision-making methods in a dynamic context, rather than a ‘neoclassical behavioral’
approach in which (according to him) heuristics are necessary sources of bias and errors.
He concluded, from his empirical research, that entrepreneurs are likely to use any of the
following five heuristics when assessing business opportunities: strategic fit, know the
market, trusting others, trusting gut, and worst case scenario. As for De Carolis and Sapar-
ito (2006), they claimed that biases are not, of themselves, ‘positive’ or ‘negative’ states
(45), but included three cognitive biases in their model, the first two of which are often
regarded as problems: overconfidence, illusion of control, and representativeness, the lat-
ter usually being referred to as a heuristic.
Clearly, there is a lack of consensus in the way the notions of heuristic and cognitive
bias are treated, particularly in the entrepreneurship literature. It is therefore hardly sur-
prising that all the lists and classifications of heuristics and biases, whatever their source,
have very little in common, and that the number of heuristics and biases varies signifi-
cantly within each list or classification, as we will now see.
Lists and classifications of heuristics and cognitive biases

Originally, Tversky and Kahneman (1974) thought there were three main heuristics used to
assess probabilities and predict events in uncertain contexts. The first of these is the repre-
sentativeness heuristic, where the probability that an event or situation will occur is
assessed according to its implicit or explicit similarity to other events or situations,
as though it fell into the same category or class. For example, owner-managers of fast-
growing small and medium-sized enterprises (SMEs) might use this heuristic if they
believe that they are bound to face the type of cash crisis that is typical of successful firms
(a scenario that may or may not in fact occur). Second is the availability heuristic, where
the probability that an event or situation will occur is assessed according to the facility
with which the decision-maker is able to recall similar events or situations. This is the heu-
ristic used, for example, by entrepreneurs who decide not to launch a new venture in a
given sector after learning of the highly mediatized problems experienced by other firms in
that sector a decision that may have been different if the information had not been
immediately available. Third and last is the anchoring-and-adjustment heuristic, where an
initial value is used to produce an estimate or starting point that is then adjusted before the
final decision is made. An extrapolation of such a decision would be where an entrepreneur
forecasts the firm’s sales or profits on the basis of data from past years (or any other crite-
rion). Tversky and Kahneman associated six biases with the representativeness heuristic
(including insensibility to prior probability of outcomes and insensibility to sample size),
four with the availability heuristic (including the tendency to ascribe more weight to recent
events, key events, or events that are easy to remember) and three to the anchoring-and-
adjustment heuristic (including the tendency to make insufficient adjustments).
Many lists and classifications have been proposed in the wake of the remarkable paper
by Tversky and Kahneman. It would be too long to present them all here, but Table 1
gives a good idea of the major works on the subject (including the contribution of Tversky
and Kahneman), and the major differences between them.
These very distinct lists and classifications suggest that researchers use the constructs
of heuristic and cognitive bias in a somewhat anarchic way, with no specific conceptual
support. This lack of consensus means that it is not really possible, a priori, to use a solid
reference framework to structure an analysis of existing research into the heuristics and
cognitive biases of entrepreneurs. It therefore appears more appropriate to apply inductive
logic, i.e. to use each specific case as a basis, and then, if necessary, to generalize by cre-
ating categories and sub-categories.
Methodological framework
Generally speaking, the aim of this research is to review the current state of knowledge on
the heuristics and cognitive biases of entrepreneurs. Given that the notions of heuristic
476 P. Cossette
Table 1. Important lists and classifications of heuristics and cognitive biases.
Authors Lists and classifications
Tversky and Kahneman 3 heuristics (representativeness, availability, and anchoring and

(1974) adjustment) and 13 biases directly associated with them.
Hogarth and Makridakis 30 biases (not distinguished from heuristics), including selective
(1981 perception, emotional stress, the law of small numbers, and
attribution of success and failure. Presented according to the
information processing stage at which they are likely to emerge.
Schwenk (1984) 11 cognitive simplification processes (expression used as a synonym of
both bias and heuristic), including escalating commitment, single
outcome calculation, and illusion of control. Presented according to
the stage of the strategic decision-making process in which they might
occur.
Bazerman (1990) 3 heuristics and 13 biases (different from those of Tversky and
Kahneman), including the confirmation trap (tendency to seek out
information that confirms our beliefs and ignore contrary information)
and the hindsight bias (tendency, after the event, to overestimate our
ability to predict what actually happened or, in other words, not to be
‘surprised’ by what happened).
Manimala (1992) More than 600 entrepreneurial heuristics, subsequently reduced to 186
(grouped into 57 untitled categories), including ‘be a pioneer in the
choice of products’, ‘personnel first’ and ’avoid direct competition
with established firms.’
Lebraty and Pastorelli- 17 biases (not distinguished from heuristics), including overconfidence.
Negre (2004) Not classified in any particular way.
Shah and Oppenheimer 42 different heuristics, some very general (e.g. representativeness),
(2008) others very specific (e.g. price and brand heuristics).
and cognitive bias are not always defined in the same way, and that the same applies, tra-
ditionally, to the notion of entrepreneur, our systematic review of the literature will not,
a priori, exclude research based on any particular conception of these constructs. In other
words, the meaning ascribed to the terms will not be used to determine whether or not a
paper is included in the body of literature under consideration, making the review even
more comprehensive in nature.
In addition, as mentioned earlier, the synthesis and analysis task will focus on empiri-
cal texts. Having said this, conceptual texts such as those already mentioned in the previ-
ous sections, will also be used to enrich the discussion of our findings.
To identify empirical studies into the heuristics and cognitive biases of entrepreneurs,
we used the ProQuest research tool, which gave us simultaneous access to 31 databases
(including ABI/INFORM Complete, ProQuest Social Science Journals, ProQuest Educa-
tional Journals, and ProQuest Sociology) containing papers from more than 8000 periodi-
cals and journals.1 Of course, the databases did not, with some rare exceptions, include
books and book chapters on research relevant to this paper. However, and obviously,
empirical works into the heuristics or cognitive biases of entrepreneurs published only in
books and not in academic journals are extremely rare. Nevertheless, we consider this to
be one of the limitations of our study.
The ABI/INFORM Complete and other databases were searched using the following
statement: [bias or heuristic] and [entrepreneur]. The asterisk helped identify deriva-
tives of the main concept, in case an author had used a different expression to refer to the
target concept (e.g. biased judgment). Only papers published in peer-reviewed journals
were considered. In addition, the statements targeted only the content of the abstract or
title, based on the assumption that, if the search terms did not appear in the abstract or
title, then the paper was not concerned directly or extensively with the heuristics or cogni-
tive biases of entrepreneurs. Once again, this decision is a limitation of the study, but it is
nevertheless highly unlikely that large numbers of relevant papers were not identified. To
counter this limitation as far as possible, the bibliographies of the papers identified using
the initial statement were examined to ensure that other, relevant texts had not been left
out for example, a study of a specific bias where the term ‘bias’ did not appear in the
abstract or title. Lastly, no time limit on publication dates was set.
Findings
The search of the 31 databases via ProQuest in August 2013, with no start date and an end
date of late 2012, identified more than 200 texts. Several of the texts were found in more
than one database, giving rise to repetitions. In addition, after careful consideration of
each individual paper, some were eliminated because they did not fit with the goal of the
research. The eliminated papers included:
All conceptual or theoretical texts.

All texts on the subject of entrepreneurs but not focusing directly, in whole or in
part, on heuristics or cognitive biases (or one of the two). This was the case, for
example, where a paper simply asserted that entrepreneurs did not make formal use
of the rational decision-making model, or where the heuristics or biases were
evoked solely for the purpose of commenting the research findings.
All texts concerned with the heuristics or biases of other actors connected with
entrepreneurs (e.g. investors), rather than those of the entrepreneurs themselves.
All texts in which the term ‘bias’ in the title or abstract referred not to a cognitive
bias of an entrepreneur, but to a bias of the researcher (or the research methods or
results), or to a more unfortunate focus, such as women (gender bias) or immigrants
wishing to launch a business.
Ultimately, the search revealed 26 empirical papers concerned wholly or partially

with the heuristics or cognitive biases of entrepreneurs. In this section, I will begin by
examining the findings of these papers with heuristics and biases treated separately
before focusing on the main elements of the methodological framework created to obtain
them.
Analysis of empirical research findings

Table 2 shows the findings from studies of the heuristics or biases of entrepreneurs.
Before going into detail, however, it is useful to make some more general observations.
First, only 26 empirical texts have been published on the heuristics or cognitive biases
of entrepreneurs. This means that the theoretical papers on this subject and there are
many, although it is difficult to give an exact number are based on a limited volume of
actual research, or have generated little empirical work. Second, of these 26 texts, only
four refer to research findings published before 2000 (there are in fact five such papers,
but those written by Busenitz and Barney (1997) and by Busenitz (1999) present what
amounts to the same research or findings).2 The papers describing 17 of the 25 studies
478 P. Cossette
Table 2. Findings from studies of heuristics and cognitive biases.
References Main Findings
Cooper, Woo, and Entrepreneurs who have recently created or acquired a new venture seem
Dunkelberg (1988) to ascribe a much greater probability of success to their firm than is
suggested by success rate statistics for similar firms. Their
overoptimism is also reflected in how they perceive the probability of
their firm’s success compared to that of similar firms. Their
overoptimism appears to persist after venture creation.
Manimala (1992) In a comparison of more innovative and less innovative firms,
entrepreneurial heuristics were found to differ. Among other things,
innovative firms tend to search actively and continuously for new
ideas, inside rather than outside the firm, adopt those that are
compatible with the firm’s vision, goals, capacities, and current

activities, choose their partners according to their expertise rather than
their financial input, pay much more attention to their internal
technological and financial development, adopt a vertical integration
strategy for growth, be more flexible in terms of management
structures, procedures, and styles, focus on information management,
and maintain extensive networks in the community.
McCarthy, Schoorman, Entrepreneurs who create a firm (as opposed to acquiring one), and those
and Cooper (1993) who are overconfident (i.e. have a very high level of self-esteem) tend
to make growth-focused decisions for their firm, and hence continue to
invest financially in the firm independently of revenue growth. On the
other hand, and contrary to assumptions, this tendency to invest more is
not statistically significant among entrepreneurs with business partners
or among those who expect to use their own skills in the
entrepreneurial context (i.e. those who are extremely confident in their
own entrepreneurial skills self-efficacy). These four factors (venture
creation, overconfidence, existence of partners, and expectation of
using own skills) appear to have a greater impact on escalation of
commitment when the firm’s performance over time is disappointing,
i.e. when market feedback is initially negative.
Busenitz and Barney Entrepreneurs are more likely than large corporation managers to use the
(1997) following two biases or heuristics when making decisions:
overconfidence (tendency to overestimate the probability of being
right) and representativeness (tendency to over-generalize based on a
small number of characteristics or observations).
Busenitz (1999) Entrepreneurs are more likely than large corporation managers to
generalize based on a small sample, and to exhibit overconfidence
when making decisions.
Simon, Houghton, and Generally speaking, the findings suggest that people create ventures
Aquino (2000) because they do not fully appreciate the risks involved, not because
they are willing to accept a high level of risk. More specifically, there
does not seem to be a link between perceiving a low level of risk and
deciding to create a venture. Moreover, the illusion of control and
belief in the law of small numbers appears to reduce the perception of
risk, but overconfidence does not.
Keh, Foo, and Lim Low risk perception appears to be linked to positive business opportunity
(2002) assessment. Moreover, there is no significant link between
overconfidence, belief in the law of small numbers, and the tendency to
overestimate what can be done in a given period of time (planning
fallacy) on the one hand, and perception of risk on the other. Only
illusion of control seems to affect perception of risk. Lastly, belief in
the law of small numbers seems to have a direct impact on opportunity
assessment, i.e. perception of risk does not act as an intermediate
variable.
(continued)
Table 2. (Continued )
Wickham (2003) The representativeness heuristic seems to act on judgments about the
probability of success and failure in entrepreneurial projects.
Forbes (2005) Younger entrepreneurs and, somewhat surprisingly, those who analyze
and plan more, are more likely to exhibit overconfidence. The same
applies, to a lesser extent, to entrepreneurs whose firms are smaller or
younger. Overconfidence among entrepreneurs seems to be lower in the
presence of external equity funding. In addition, there is no link
between entrepreneurial self-efficacy and level of overconfidence.
Lastly, managers who founded their own firms exhibit more
overconfidence than managers in new firms not founded by them.
Lowe and Ziedonis When comparing the performance of entrepreneurs to the performance of
(2006) firms created to market university inventions, the former are no less
successful than the latter, suggesting that entrepreneurs are no more
overoptimistic than managers in established firms, contrary to previous
findings. On the other hand, in line with previous findings on
overoptimism bias, entrepreneurs tend to persist in their efforts for
longer in the absence of positive results.
Fraser and Greene (2006) Entrepreneurs seem to be more optimistic than employees, and optimism
diminishes with experience.
Burmeister and Schade When entrepreneurs are compared to students and to bankers, they do not
(2007) seem to be any more influenced than students by the status quo bias
(tendency to decide in favor of the status quo or of an option already
chosen in the past), and are less influenced by it than bankers.
Bryant (2007) When ‘assessing’ an opportunity, entrepreneurs seem to use one or more
of the following five heuristics: strategic correspondence, market
knowledge, confidence in others, confidence in own instinct, and worst
case scenario. However, the nearer they are to ‘operationalizing’ the
opportunity, the more likely they are to adopt a more rigorous or
systematic approach. In addition, entrepreneurs appear to be more
motivated by the desire for potential gain (the promotion focus) than by
avoidance of potential losses (the prevention focus). This focus on
potential gain does not appear to be correlated with self-efficacy.
Koellinger, Minniti, and In the 18 countries studied, subjective and often biased perceptions,
Schade (2007) including believing that one has the abilities needed to create a venture,
seem to have a key impact on the venture creation decision. In addition,
nascent entrepreneurs exhibit more confidence in their own abilities
than established entrepreneurs, but have a lower success rate. Generally
speaking, the countries with a high rate of entrepreneurial confidence
also seem to have a high level of entrepreneurial activity, but new
ventures also have less chance of surviving for more than 42 months.
Moore, Oesch and Entrepreneurs, like people who think of creating their own firms but do
Zietsma (2007) not, seem to make their decision based more on their assessment of
their own abilities than on their assessment of the competition.
However, this tendency toward self-focus rather than focusing on
outside factors also seems to increase the probability of launching a
venture when the target market is simple, and to reduce that probability
when the target market is complex or difficult. This suggests that
overconfidence is not a universal trait among entrepreneurs.
Trevelyan (2008) Optimism and overconfidence seem to be independent concepts, but both
play a major role in the venture creation decision. There seems to be a
correlation between optimism and the tendency to focus on potential
profits (the promotion focus), but not between overconfidence and the
tendency to focus on avoidance of losses (the prevention focus).
(continued)
480 P. Cossette
Read et al. (2009) Expert entrepreneurs and managers with no entrepreneurial experience do
not use the same heuristics when placed in hypothetical situations
where they must make marketing decisions in uncertain contexts. The
managers mainly use predictive logic, applying techniques found in
basic marketing textbooks, whereas the entrepreneurs apply non-
predictive or ‘effectuation’ logic, where decisions are based mainly on
the means that are available (i.e. who I am, what I know and who I
know).
Hmieleski and Baron There seems to be a negative link between the level of dispositional
(2009) optimism of entrepreneurs and the performance (growth in revenue and
number of employees) of their firms. The negative link seems to be

even stronger among experienced entrepreneurs, and also stronger in a
dynamic environment, both of which act as moderating variables with a
statistically significant influence.
Cassar and Craig (2009) People who fail in their venture creation attempts seem to have a strong
hindsight bias when asked to review their initial expectations or beliefs.
In other words, they were much more optimistic of their project’s
chances of success in the beginning than they now claim they were
given that the project has failed. This tendency toward hindsight bias is
not influenced by the participants’ age, or by their prior experience of
entrepreneurship, but appears to be less strong among entrepreneurs
with post-college qualifications.
Landier and Thesmar There is a strong correlation between the level of optimism of
(2009) entrepreneurs and their firm’s short-term debt. Moreover, entrepreneurs
with a high level of education and those who developed their own
venture ideas tend to be more optimistic. Lastly, optimistic expectation
errors appear to persist over time.
Townsend, Busenitz and Ability expectancies of nascent entrepreneurs (i.e. expectancies regarding
Arthurs (2010) one’s ability to be an entrepreneur) have a significant influence on the
start-up decision, while outcome expectancies (i.e. expectancies about
the likelihood of success) play only a marginally significant role in
encouraging start-up decisions. Also, the longer it takes for individuals
to act on the intention to become an entrepreneur, the less likely they
are to decide to create a new venture. The marginally positive influence
outcome expectancies have in encouraging start-up decisions is
substantially weakened the longer individuals wait to act on their
intentions.
Cassar (2010) Nascent entrepreneurs are overoptimistic in their expectations, in that they
overestimate the probability that they will be successful in creating
their venture. Moreover, when venture creation is successful, they
overestimate their future sales and level of employment. Lastly, the
adoption of plans and scenarios, especially financial forecasts, appears
to accentuate the tendency to be overoptimistic when estimating sales.
Tipu and Arain (2011) Like entrepreneurs in more developed regions, Pakistani entrepreneurs
seem to be overconfident and apply representativeness heuristics in risk
management. However, unlike other entrepreneurs, they tend to adopt
heuristics that consist in not trusting temporary employees, as well as
anchoring heuristics for business plan preparation, networking, and
financial management.
Mehrabi and Kolabi Entrepreneurs with a higher level of education and those with more
(2012) experience seem more likely than others to exhibit overconfidence bias,
while older entrepreneurs are less likely to do so. In addition, the
overconfidence bias seems to have a negative impact on the quality of
the strategic decisions made by entrepreneurs, both directly and
indirectly through the representativeness bias.
(continued)
Simon and Shrader The research findings show a positive correlation between the
(2012) introduction of pioneering products or products requiring a lot of
resources on the one hand, and optimistic overconfidence in the
products’ future success on the other. There also seems to be a
curvilinear relationship between satisfaction with the firm’s current
performance and optimistic overconfidence concerning the
introduction of new products, i.e. a performance perceived as being
very positive or very negative seems to be associated with
overconfidence, whereas a ‘moderate’ performance does not.
Moreover, the introduction of new products in a hostile or highly
competitive environment is positively linked to overconfidence but,
surprisingly, a dynamic environment characterized by frequent,

significant change is negatively linked to overconfidence. Lastly, there
seems to be a fairly positive link between the fact of founding the firm
and overconfidence when launching new products, but the link is not
statistically significant.
Kemmerer et al. (2012) The more an entrepreneur regards a resource as having value (economic
or other), or as being unique, the more he or she will ascribe
importance to it for the firm’s success. The hypothesis that
entrepreneurs ascribe more importance to resources they feel are
nonsubstitutable received only marginal support. Strangely, a
resource’s scarcity was correlated negatively with the importance
ascribed to it by the entrepreneur. These four factors (value,
uniqueness, nonsubstitutability, and scarcity) were heuristics likely to
guide entrepreneurs in judging the importance of a resource.
were published after 2006. Lastly, of the 25 different studies, 10 led to publications in the
Journal of Business Venturing (including the first four, published prior to 2000) and three
in Management Decision. The other 12 were published in 12 different journals.
Heuristics
As Table 2 shows, there has been very little research on the heuristics of entrepreneurs.
The findings from one of the earliest studies of this subject, by Manimala (1992), sug-
gested that innovative firms used different entrepreneurial heuristics than other firms,
including a more active, ongoing search for new ideas (inside rather than outside the
firm), choice of ideas compatible with the firm’s current direction and capacity, choice of
partners based on their expertise rather than their financial contribution, application of a
vertical integration strategy and flexible structures, and emphasis on information manage-
ment and networking.
More recently, Bryant (2007) showed that entrepreneurs use one or other of the fol-
lowing five heuristics to assess a business opportunity: strategic correspondence, market
knowledge, confidence in others, confidence in their own instinct, and worst case sce-
nario. According to Bryant, entrepreneurs adopt a more systematic style when approach-
ing the opportunity exploitation phase. In addition, and contrary to entrepreneurs in more
developed areas, Pakistani entrepreneurs tend not to trust temporary employees, and use
anchoring heuristics to prepare their business plan, as well as for networking and for
financial management (Tipu and Arain 2011).
482 P. Cossette
In addition, according to Read et al. (2009), entrepreneurs and managers do not use
the same heuristics when making marketing decisions in uncertain contexts. Entrepre-
neurs tend to apply non-predictive or ‘effectuation’ logic, while managers apply classical
techniques associated with predictive logic. Lastly, the value of a resource, its unique or
nonsubstitutable nature and its scarcity, are all heuristics that influence an entrepreneur’s
judgment of the resource’s importance (Kemmerer et al. 2012).
Biases
Biases have received much more attention than heuristics. The findings presented in
Table 2 clearly show that entrepreneurship researchers have focused most on the overcon-
fidence and overoptimism biases. It is important to note that these two biases are often
confused; I will come back to this point in the discussion of the findings. However, in this
section I will respect the terminology used by the authors of the cited studies, even when
it projects ambiguity as to the notions of confidence and optimism. In the second part of
this section on biases, we will see that the law of small numbers also received some atten-
tion. A last subsection will present the results of the few empirical studies on other biases.
Overconfidence and overoptimism. Exactly what lessons do we learn from these stud-
ies? Analysis of the information drawn from the 18 studies focusing at least partly on
overconfidence and overoptimism suggests that their contributions can be grouped under
three main headings. First are the studies that provide an evaluation sometimes com-
parative of the level of overconfidence or optimism bias of entrepreneurs. Second are
those that attempt to identify the impact of certain factors, implicitly or explicitly treated
as independent variables, on the level of these biases, treated as dependent variables. The
third group considers these biases as independent variables and seeks to identify their
impact on other variables.
Overconfidence and optimism biases treated as variables for evaluation. Entrepreneurs
exhibit an especially high level of optimism, in that they overestimate their chances of
success (Cooper, Woo, and Dunkelberg 1988). Trevelyan (2008), in his findings, notes
that the concepts of optimism and overconfidence are separate and independent of one
another, although both are present in entrepreneurs. Overconfidence is common among
entrepreneurs in many countries (Koellinger, Minniti, and Schade 2007; Tipu and Arain
2011). On the other hand, the findings of Moore, Oesch, and Zietsma (2007) suggest that
overconfidence is not a universal trait in entrepreneurs. Generally speaking, overconfi-
dence tends to be sustained over time (Cooper, Woo, and Dunkelberg 1988; Lowe and
Ziedonis 2006; Landier and Thesmar 2009).
Overconfidence appears to be higher among entrepreneurs than among managers in
large corporations (Busenitz and Barney 1997). Lowe and Ziedonis (2006) did not con-
firm this finding, proposing instead that entrepreneurs are no more optimistic than manag-
ers in established firms. However, entrepreneurs appear to be more optimistic than
salaried employees (Fraser and Greene 2006).
Overconfidence and optimism biases treated as dependent variables. Overconfidence
appears to be more common among young entrepreneurs than among older ones (Forbes
2005; Mehrabi and Kolabi 2012). Optimism levels appear to be higher among better-edu-
cated entrepreneurs (Landier and Thesmar 2009), who also tend to exhibit more overcon-
fidence than their less well-educated counterparts (Mehrabi and Kolabi 2012). Moreover,
nascent entrepreneurs appear to be more optimistic, in the sense that they overestimate
the probability of success when launching their firms (Cassar 2010), and more confident
in their own skills than more experienced entrepreneurs (Koellinger, Minniti, and Schade
2007), suggesting that optimism tends to diminish with experience (Fraser and Greene
2006). This probably has something to do with the fact that nascent entrepreneurs appear
to have a lower success rate than established entrepreneurs (Koellinger, Minniti, and
Schade 2007). On the other hand, the findings of Mehrabi and Kolabi (2012) suggest
instead that entrepreneurs with more experience are more likely than other entrepreneurs
to exhibit an overconfidence bias.
Overconfidence appears to be stronger among entrepreneurs who founded their own
firms (McCarthy, Schoorman, and Cooper 1993; Forbes 2005), as does overoptimism
(Landier and Thesmar 2009) among entrepreneurs who have developed their own busi-
ness ideas; however, there is no significant link between the two when it comes to launch-
ing a new product (Simon and Shrader 2012). Overconfidence appears to lessen in the
presence of external investors (Forbes 2005), but seems stronger among entrepreneurs
managing younger, smaller firms than among those managing larger, longer-established
firms (Forbes 2005).
Contrary to expectations, overconfidence appears to be higher among entrepreneurs
who analyze and plan more (Forbes 2005). Similarly, the fact of establishing plans and
scenarios, especially financial forecasts, appears to enhance the tendency for entrepre-
neurs to be overoptimistic with their sales forecasts (Cassar 2010). According to Forbes’
(2005) findings, overconfidence is not connected to entrepreneurs’ confidence in their
own self-efficacy.
The fact of introducing a pioneering product or one that requires a lot of resources
tends to increase overconfidence in the product’s future success (Simon and Shrader
2012). Also according to these same authors, a perceived very good or very bad current
performance has the same impact, as does a highly competitive environment (but not a
dynamic or changing environment).
Overconfidence and optimism biases treated as independent variables. Contrary to
expectations, overconfidence does not appear to reduce the perception of risk (Simon,
Houghton, and Aquino 2000; Keh, Foo, and Lim 2002). However, according to Trevelyan
(2008), there appears to be a link between optimism and the tendency to direct effort
toward earning potential profits (promotion focus), but no correlation between overconfi-
dence and the tendency to direct effort toward avoiding potential losses (prevention
focus).
There also appears to be a strong correlation between the level of an entrepreneur’s
optimism and the firm’s short-term debt (Landier and Thesmar 2009). One study shows
that entrepreneurs who are overconfident are more likely to invest financially in their
firm’s growth, independently of increasing sales, the presence of business partners and
their specific skills in the firm’s field (McCarthy, Schoorman, and Cooper 1993).
Overconfidence also seems to be a better predictor of escalation of commitment bias
when sales diminish than when they increase (McCarthy, Schoorman, and Cooper
1993).
Overoptimism in nascent entrepreneurs is reflected not only in their belief that they
will be able to launch their business successfully, but also in their overestimation of the
firm’s future sales and the size of its workforce (Cassar 2010). The ability expectancies of
nascent entrepreneurs seem to have a significant influence on the start-up decision, while
outcome expectancies would play only a marginally significant role in encouraging start-
up decisions (Townsend, Busenitz, and Arthurs 2010). Overconfidence also appears to
have a negative impact on the quality of the strategic decisions made by entrepreneurs
(Mehrabi and Kolabi 2012). The level of ‘dispositional’ optimism among entrepreneurs
484 P. Cossette
appears to be linked negatively to firm performance a link that is even stronger in the
case of experienced entrepreneurs, and also when the firm operates in a dynamic as
opposed to a stable environment (Hmieleski and Baron 2009). Generally speaking, coun-
tries in which entrepreneurial confidence is high also appear to have a high level of
entrepreneurial activity, but the firm survival rate is lower after a few years (Koellinger,
Minniti, and Schade 2007).
Law of small numbers. The law of small numbers refers to the tendency to generalize on
the basis of small samples. After overconfidence and overoptimism, it is the cognitive
bias that has received the most attention in empirical entrepreneurship research. Busenitz
and Barney (1997), in their findings, suggest that this bias is more characteristic of entre-
preneurs than of managers, and the findings of Simon, Houghton, and Aquino (2000) sug-
gest that it reduces the perception of risk, although this connection was not confirmed by
Keh, Foo, and Lim (2002).
Other biases. As Table 2 shows, several cognitive biases have received only limited
attention in empirical entrepreneurship studies. However, the findings are nevertheless
interesting.
Illusion of control. Simon, Houghton, and Aquino (2000) and Keh, Foo, and Lim
(2002) suggest, based on their findings, that illusion of control reduces the entrepreneur’s
perception of risk.
Planning fallacy. According to Keh, Foo, and Lim (2002), there does not appear to be
a link between an entrepreneur’s overestimation, what he or she is able to achieve in a
given period of time, and the perception of risk.
Escalation of commitment. Venture creation (as opposed to venture acquisition) and a
high level of self-esteem (overconfidence) appear to be linked to growth-oriented deci-
sions, but not the presence of business partners or the sense of being able to rely on cur-
rent skills in the venture creation context (McCarthy, Schoorman, and Cooper 1993).
Also according to McCarthy, Schoorman, and Cooper (1993), these four factors have a
more significant impact on escalation of commitment when sales diminish than when
they increase. It is important to remember that, generally speaking, escalation of commit-
ment is more likely to occur in the presence of overconfidence (Cooper, Woo, and
Dunkelberg 1988, Landier and Thesmar 2009), especially when performance is absent
(Lowe and Ziedonis 2006).
Status quo bias. Are entrepreneurs conservative? Burmeister and Schade (2007) show
that entrepreneurs are less likely than bankers to make decisions based on the status quo
or a previously chosen option, but are no more influenced by the status quo bias than
students.
Hindsight bias. According to Cassar and Craig (2009), entrepreneurs exhibit a strong
hindsight bias in failed venture creation attempts, i.e. they were much more optimistic at
the beginning of the process than they admitted now. This bias is unrelated to age or expe-
rience, but appears to be weaker among entrepreneurs with a university degree.
Analysis of methodological frameworks

Table 3 shows the main elements of the methodological frameworks used in the 25 stud-
ies of the heuristics and cognitive biases of entrepreneurs examined for this research. The
following four aspects were considered in more detail.
Design: Experimental (or, mostly, quasi-experimental), synchronic or cross-

sectional (mostly ‘survey’ type studies), diachronic or longitudinal, comparative
(often comparing countries or nations), and case studies (an organization, a person,
an event, etc.). This classification is taken from Bryman and Bell (2007).
Samples: Size, target population, and country.
Data collection techniques: Questionnaire (usually with closed questions or assess-
ment questions (i.e. using a Likert scale)) and administration method (in person, by
mail, by e-mail), interview (non-structured or semi-structured), scenario method
(or analysis of small case studies or simulations), and secondary data (i.e. data col-
lected previously for other purposes). Other techniques exist, but they were not
used in any of the 25 studies.
Data analysis techniques: Statistical analysis and content analysis.
Design
The design of a study is basically the reference framework used to structure data collec-
tion and analysis (Bryman and Bell 2007). The researchers studying the heuristics and
biases of entrepreneurs have tended to prefer a synchronic or cross-sectional design, i.e.
one that seeks to obtain a profile of a situation at a specific moment in time. Researchers
using this type of design are usually attempting to determine the extent to which certain
variables are linked.
However, our sample also contained five studies that used a diachronic or longitudinal
design; four were published after 2009 and used secondary data. The case study approach
was used in only two studies, one carried out in India (1992) and the other in Pakistan
(2011). As for the experimental approach, it, too, was used in only two empirical studies
published in 2007, one by Burmeister and Schade (2007) and, in part, one by Moore,
Oesch, and Zietsma (2007). Lastly, Koellinger, Minniti, and Schade (2007) were the only
authors to use a comparative design.
Samples
One of the outstanding factors was the remarkable range of countries in which the studies
took place. Obviously, many were carried out in the United States (n D 14, but only 7
after 2006), but there were two in Australia and one in each of the following countries:
Canada, England, France, Germany, India, Iran, Pakistan, and Singapore. In one study,
carried out in 2008, the sample entrepreneurs were drawn from 18 different countries. In
five of the studies, the sample was composed of more than 2000 people.
Data collection techniques

First of all, in roughly one-third of the studies, the researchers used more than one data
collection technique. Of course, questionnaires (n D 14: 11 by mail, 2 by e-mail, and 1
administered in person) and interviews (n D 6) were used. However, many researchers
used secondary data (n D 9) and the scenario method (or small case studies and simula-
tions, n D 8).
Data analysis techniques

In 24 of the 25 studies, the researchers used statistical methods to analyze their data (espe-
cially regression and variance analyses). In eight cases they also used content analysis
Table 3. Methodological frameworks of studies.

486
Reference Structure Sample Data collection technique(s) Data analysis technique(s)
Cooper, Woo, and Synchronic 2994 American entrepreneurs who had recently Questionnaire (mail) Statistics
Dunkelberg (1988) become business owners
Manimala (1992) Case study 138 entrepreneurs’ stories published in popular Secondary data, interviews Content analysis, statistics
P. Cossette
newspapers and 26 case studies of Indian

entrepreneurs
McCarthy, Diachronic 2953 American owner-managers of SMEs with 30 Questionnaire (mail) Statistics
Schoorman, and employees or less at the time of the first study, 1112
Cooper (1993) at the time of the second study, and 826 at the time
of the third study
Busenitz and Barney Synchronic 124 entrepreneurs and 95 senior or middle managers in Questionnaire (mail), Statistics, content analysis
(1997) large corporations in the United States scenario method
Simon, Houghton, and Synchronic 191 students enrolled in an MBA program in the Case analysis, questionnaire Statistics, content analysis
Aquino (2000) United States (mail), scenario method
Keh, Foo, and Lim Synchronic 77 entrepreneurs from Singapore Case analysis, questionnaire Statistics
(2002) (mail)
Wickham (2003) Synchronic 155 American undergraduate students Small case analysis Statistics
Forbes (2005) Synchronic 115 entrepreneurs (phase 1) and 108 managers in new Questionnaire (mail and e- Statistics
firms (phase 2) in the United States mail)
Lowe and Ziedonis Synchronic 734 inventions from the University of California, from Secondary data Statistics
(2006) 1981 to 1999, marketed by entrepreneurs (n D 267)
and by established firms (n D 467)
Fraser and Greene Synchronic Nearly 2000 British self-employed workers and more Secondary data Statistics
(2006) than 15,000 employees
Burmeister and Schade Experimental 240 German entrepreneurs, 427 students, and 135 Scenario method Statistics
(2007) bankers
Bryant (2007) Synchronic 30 Australian entrepreneurs Interview, questionnaire (in Content analysis, statistics
person)
(continued)
Reference Structure Sample Data collection technique(s) Data analysis technique(s)
Koellinger, Minniti, Comparative More than 42,000 nascent entrepreneurs, new or Secondary data Statistics
and Schade (2007) established, from 18 countries
Moore, Oesch, and Synchronic (phase I) 34 entrepreneurs and 20 people who decided not to Interview, simulation Content analysis, statistics
Zietsma (2007) and experimental create a venture, all Canadians (phase I); 96
(phase II) undergraduate students (phase II)
Trevelyan (2008) Synchronic 73 Australian entrepreneurs Questionnaire (e-mail) Statistics
Read et al. (2009) Synchronic 27 expert entrepreneurs and 37 managers (MBA Hypothetical business Content analysis, statistics
students) with little or no entrepreneurial scenarios (Concurrent
experience, almost all Americans verbal protocol analysis).
Hmieleski and Baron Synchronic 207 American entrepreneurs Questionnaire (mail), Statistics
(2009) secondary data
Cassar and Craig Diachronic 198 American nascent entrepreneurs Secondary data Statistics
(2009)
Landier and Thesmar Diachronic Several thousand French entrepreneurs Secondary data Statistics
(2009)
Townsend, Busenitz, Diachronic 316 nascent American entrepreneurs, over a 5-year Secondary data, interviews Statistics
and Arthurs (2010) period (tel.), questionnaire (mail)
Cassar (2010) Diachronic 386 nascent American entrepreneurs Secondary data Statistics
Tipu and Arain (2011) Case study 3 Pakistani entrepreneurs Interview Content analysis
Mehrabi and Kolabi Synchronic 110 Iranian entrepreneurs considered to be among the Questionnaire (mail) Statistics
(2012) best
Simon and Shrader Synchronic 65 managers (founders or not) of American SMEs in Interview, questionnaire Content analysis, statistics
(2012) the information technology sector, preparing to (mail)
launch new products or having done so in the last
three months (phase 1) and 55 of this group (phase
2) 8 months later
Journal of Small Business & Entrepreneurship
Kemmerer et al. Synchronic 181 American entrepreneurs registered for a 2 4 Questionnaire (mail) Statistics
(2012) month training program
487
488 P. Cossette
(basically theme-based analysis, sometimes using applications such as NVIVO), usually

(in seven out of eight cases) as a prerequisite step to the quantification and statistical anal-
ysis of their qualitative data. Only Tipu and Arain (2011) used content analysis alone.
Discussion
Our findings from this summary and analysis reveal that, as of the end of 2012, there had
been few empirical studies just 25 in all of the heuristics and cognitive biases of
entrepreneurs. This low figure will undoubtedly come as a surprise to many people. The
large number of conceptual papers on these topics undoubtedly gives the impression that
there has been much more fundamental research, when in fact there has not. While it may
be regrettable to some that many of the potential avenues for research proposed in the
conceptual papers have not been taken up by researchers, this is a trend that may well be
common in other research fields too.
The results of our study will now be discussed in six different subsections. Potential
areas for future research will be highlighted.
Overconfidence and overoptimism: Distinct constructs and inconsistent results

The overconfidence and overoptimism biases, while not always clearly distinguished
from one another, are those that have received by far the most attention from researchers.
These biases appear to be more common, generally speaking, among entrepreneurs than
among managers and employees. In most cases, these biases were compared to other vari-
ables as part of correlation studies. Sometimes they were treated, implicitly or explicitly,
as dependent variables, and their high level was explained or determined (with support
from statistics) by factors such as the entrepreneur’s young age, limited experience or
high level of education, the fact that the firm was created as opposed to acquired, the
entrepreneur’s tendency to analyze and plan, the small size and relative youth of the firm,
the fact that the firm had introduced pioneering products or products requiring a lot of
resources, a perceived very good or very poor current performance, a highly competitive
environment, and a lack of external investors. In other cases they were treated as indepen-
dent variables.3 For example, overconfidence did not appear to reduce the perception of
risk. Confidence in one’s ability would be a robust predictor of start-up, while outcome
expectancies would play only a marginal role. The optimism bias appeared to be linked
to promotion focus, whereas overconfidence was not linked to prevention focus. In addi-
tion, the optimism bias appeared to be associated with a preference for short-term financ-
ing. Entrepreneurs exhibiting overconfidence appeared to invest more in firm growth, and
overconfidence was also conducive to escalation of commitment. As for the optimism
bias, it led to overestimates of future sales and workforce size. Unsurprisingly, the opti-
mism bias also seemed to be linked to poor strategic decisions and poor firm performance,
especially in the case of experienced entrepreneurs and firms operating in dynamic
environments.
As mentioned earlier, the overconfidence bias and optimism bias are not always
clearly distinguished, even though they appear to be very different. Based mainly on the
work of Griffin and Varey (1996; see also Trevelyan (2008) and Bessiere (2007)), the
basic difference between these two biases is as follows: overconfidence refers to overesti-
mation of one’s own competency (knowledge, skills, aptitudes, abilities, etc.), or more
generally, to the validity of one’s own judgment in the absence of a preferred hypothesis
or outcome, while overoptimism refers to overestimation of the probability that a desired
situation or event will occur (wearing rose-colored glasses). Overconfidence appears to be

exhibited in some situations but not in others, whereas overoptimism is a general charac-
teristic that remains stable, and is not related to specific situations, as suggested by Tre-
velyan (2008) and by Griffin and Varey (1996). However, overconfidence is not always
defined and measured in the same way in the entrepreneurship literature, and is frequently
confused with overoptimism, as Trevolyan (2008) also pointed out. Researchers would
certainly benefit from paying more attention to these two constructs when using either or
both, if only to facilitate comparisons of their findings.
It should also be noted that the findings from the empirical studies examined here
were not always consistent, and were sometimes contradictory. For example, contrary to
what several other researchers had suggested see in particular the summary by Bessiere
and Pouget (2012), supporting the hypothesis of entrepreneurial overconfidence over-
confidence is not in fact a universal trait among entrepreneurs (Moore, Oesch, and
Zietsma 2007) and overoptimism may not be any more widespread among entrepreneurs
than among managers in established firms (Lowe and Ziedonis 2006). Also, and some-
what surprisingly, the optimism bias appears to be stronger among well-educated entre-
preneurs than among their less-educated counterparts (Landier and Thesmar 2009), while
the hindsight bias is less strong (Cassar and Craig 2009). In addition, while Koellinger,
Minniti, and Schade (2007) found that more experienced entrepreneurs tend to have more
confidence in their own abilities, Mehrabi and Kolabi (2012) found the opposite to be
true: more experienced entrepreneurs are more likely to exhibit an overconfidence bias.
Clearly, in view of these contradictions, further research is required.
Predominance of synchronic or survey design

As for the methodological frameworks of the studies examined, they were mostly based
on a synchronic or survey design. Samples were generally large sometimes composed
of several thousand people, rarely less than a hundred and highly diverse in terms of
the participants’ country of origin. Questionnaires, interviews, secondary data, and the
scenario method were often used, but data analysis was usually statistical. All these char-
acteristics reflect an interesting level of methodological variety. However, it is reasonable
to think that more in-depth studies would help understand the heuristics and biases of
entrepreneurs, including their origins and consequences. For example, life stories of expe-
rienced entrepreneurs would help identify heuristics and biases, how they develop and
change, their impacts, and how entrepreneurs deal with them. In addition, given the possi-
bility of a strong socio-cultural component in the heuristics and biases, a comparative
design would help identify differences between countries or nations in this respect.
What heuristics and biases in entrepreneurs should we study?

Although there has been very little research into the heuristics and cognitive biases of
entrepreneurs, there is no reason to conclude from this that researchers should focus their
efforts on all heuristics and biases that have not yet been studied empirically. Given the
reality of entrepreneurship, some of these elements deserve more attention than others.
For example, if we look at the list of cognitive mechanisms considered by Baron (1998)
to be especially relevant to entrepreneurship, researchers should perhaps concentrate
more on the self-serving bias (i.e. the tendency to feel responsible for one’s successes but
not for one’s failures). The same applies to the planning fallacy, which often leads to
overconfidence in future results. Researchers should also focus on counterfactual
490 P. Cossette
thinking, or the tendency to imagine what might have happened if something else had
been done instead although this process cannot, strictly speaking, be regarded as a cog-
nitive bias, and although its consequences can be positive or negative. According to
Baron (1999), who worked extensively on this mechanism (see also Curşeu, Vermeulen,
and Bakker 2008), a reduced tendency to engage in counterfactual thinking may help
diminish the hindsight bias among entrepreneurs, and help them to acknowledge their
own mistakes.
And what about the lack of work on analogical reasoning, a bias that appears to be
common among entrepreneurs (Simon and Houghton 2002) and that causes them to reach
doubtful conclusions on new situations, based to a large extent on their understanding of
another, similar situation that is simply more familiar to them, or less complex, or more
memorable, or easier for them to remember? Not forgetting the confirmation trap, or ten-
dency to seek out information that confirms what one believes, while ignoring or rejecting
contradictory information, a trend that may well exist in many entrepreneurial situations
and that, according to Langer (1983, cited in Schwenk 1988), serves to reinforce another
bias, illusion of control. As we have seen in this research, all these biases have, as yet,
received little or no attention from entrepreneurship researchers.
Heuristics and biases in specific contexts

Although very few empirical studies have been done specifically on the heuristics of
entrepreneurs, the findings to date suggest that those heuristics vary according to context.
For example, as shown by Bryant (2007), the heuristics used at the business opportunity
assessment stage are not the same as those used at the opportunity exploitation stage.
Generally speaking, new research is needed on the subject of heuristics (and the biases
they may generate) at different stages in the entrepreneurial process, or in different func-
tions, such as marketing (see Read et al. 2009), in different countries (see Tipu and Arain
2011) or in different activity sectors (manufacturing, services, etc.). Generally speaking,
we need to determine which heuristics are more frequently used in which context and
why. Research such as this has become essential if we are to understand the entrepreneur-
ial process as a whole, and provide convincing answers to the questions raised by Baron
(2004): Why do some people decide to become entrepreneurs, why are some more skilled
than others in recognizing opportunities, and why are some more successful than others?
Also, as proposed by Holcomb et al. (2009), the influence of heuristics on entrepreneurial
learning, i.e. ‘the process by which people acquire, assimilate, and organize newly formed
knowledge’ (86), has to be better understood, given that learning is fundamental to
entrepreneurs’ development.
Specifically in connection with Baron’s second question, it is regrettable that there has
been so little interest in studying heuristics and cognitive biases in connection with the
identification of entrepreneurial opportunities. According to Sarasvathy et al. (2003),
these opportunities may be ‘recognized’ (exploitation of existing markets), ‘discovered’
(exploration of existing or latent markets), or ‘created’ using effectuation logic, where
decisions leading to the creation of new ventures or new markets are guided by the
available means. With this typology, it would be useful to identify the specific heuristics
and the biases most likely to emerge in each of these three views of entrepreneurial oppor-
tunities, and, not to be forgotten, in the case of collective opportunity identification;
among other things, we should be thinking of the dangers of what Roxburgh (2003) refers
to as ‘false consensus’ (37), caused among other things by the confirmation trap and
groupthink.
Formation and transformation of heuristics and biases

In a similar line of thought, it is also regrettable that there has been no direct research on
the following question: How are heuristics and cognitive biases formed, and are they
changed by the individual’s entrepreneurial experiences? The lack of interest in such a
fundamental question may perhaps be explained by the fact that it would require a qualita-
tive, longitudinal research design that would be extremely demanding for the researcher.
In a recent analysis of entrepreneurship research carried out from a cognitivist stand-
point, Gregoire, Corbett, and McMullen (2011) observed that, generally speaking, cog-
nitive variables were studied mainly as independent variables in other words,
researchers were mostly interested in their impacts on other variables, rather than in
their origins and development. As we saw earlier, our findings do not support this state-
ment, at least in respect of heuristics and cognitive biases. However, as suggested gener-
ally by Gregoire, Corbett, and McMullen (2011), future research should look at the
factors explaining why a specific heuristic is adopted and why a specific bias is present
perhaps, as those authors suggested, by distinguishing between internal factors (e.g.
personality traits) and external factors (e.g. the environment). Similarly, it is reasonable
to think that the entrepreneur’s cognitive style (see esp. Sadler-Smith 2004), a concept
that has been researched enthusiastically in the literature on entrepreneurial cognition
since 2004 (Cossette 2010), may have a key impact on the heuristics used by entrepre-
neurs and the biases they tend to exhibit. In addition, it may be useful to clarify the
impact of variables such as age, gender or, more generally, the ‘type’ of entrepreneur
(see, for example, the study by de Kort and Vermulen (2008) on an individual’s
heuristics and biases).
It is also possible that heuristics and biases are not all completely independent of one
another, or, at least, that they may form ‘configurations’ in other words, some may
tend to be connected so closely with others that they are, in some respects, part of the
same group. For example, in entrepreneurs, to what extent may the overconfidence bias
be linked (as an independent variable or a dependent variable) to the optimism bias, the
planning fallacy, illusion of control, the self-serving bias, escalation of commitment or
even, as Russo and Schoemaker (1992) suggested, the confirmation trap and the hindsight
bias? To my knowledge, researchers have not yet shown an interest in studying these
potential configurations, even though they may have been evoked in conceptual publica-
tions. There is at least an interesting exception: In a recent study, Gudmundsson and
Lechner (2013) conclude that both optimism and distrust are positively associated with
overconfidence, although the first would have direct negative influence on firm survival
while the second would have a positive one. In addition, in connection with these configu-
rations, it should also be remembered that some heuristics may be linked closely with spe-
cific biases (see in particular Tversky and Kahneman (1974) and Bazerman (1990)), that
some heuristics may act at the same time, and that some heuristics may generate only one
bias (Bazerman 1990). One interesting focus for future work would be to see whether
there are significant differences between individual entrepreneurs, in terms of the number
and types of biases they exhibit, depending on the heuristics they use. Unfortunately, the
empirical literature appears to be silent on these particular groupings.
Prevention and elimination of inappropriate heuristics and biases

Lastly, in the early sections of this paper we saw that many authors had acknowledged the
potentially beneficial but also harmful effects of heuristics and cognitive biases. Yet, there
492 P. Cossette
do not seem to be any empirical studies in the entrepreneurship literature on how to pre-
vent or eliminate the use of inappropriate heuristics or the presence of dangerous cogni-
tive biases in specific situations, or on how to react constructively when they emerge. So
far, researchers have focused mainly on the importance of becoming ‘aware’ of the poten-
tial dangers of heuristics and biases in specific situations (see in particular Hammond,
Keeney, and Raiffa 1998). In some cases, as shown by Lebraty and Pastorelli-Negre
(2004), the goal may well be not to eliminate a bias, since its presence may sometimes
give the decision-maker an opportunity to improve his or her heuristics, but instead to
make the decision-maker aware that the bias has pushed him or her away from the origi-
nal intention. However, my observation remains unchanged: there appears to have been
no research into the solutions or assistance to be given to entrepreneurs in connection
with these cognitive aspects.
To be more specific, in a highly stimulating paper on hidden traps in managers’ deci-

sion-making, Hammond, Keeney, and Raiffa (1998) emphasized the importance of being
aware of those traps; this was the overall solution they proposed. In their view, decision-
makers need, among other things, to be aware that they tend to give too much weight to
the initial information they receive, to the things that strike them as being important, to the
things they can remember easily or to information that serves only to confirm what they
already believe. Among other things, Hammond et al. invite decision-makers to consider a
given situation from different standpoints and to ask other people for their opinions (e.g. to
avoid escalation of commitment), and adopt a disciplined approach when forecasting or
considering possibilities. All this advice applies equally well to entrepreneurs. Indeed,
around the same time, Baron (1998) also recommended that researchers should focus on
the development of techniques aimed at neutralizing the biases to which entrepreneurs
were especially vulnerable, including the self-serving bias, the planning fallacy, and the
escalation of commitment bias. Unfortunately, however, the message does not seem to
have been heard by the experts. If we look at the findings from this study, one of the most
interesting avenues for future research would be to take an experimental process and test
different programs, awareness and training exercises, information collection methods, and
techniques or activities (via conferences, mentoring, etc.) aimed at making entrepreneurs
more aware of the potential dangers of their heuristics and cognitive biases. In many cases,
it may be possible, also, to prevent or eliminate the heuristics and biases, or teach entrepre-
neurs to deal with them in a positive way. In doing this, researchers would benefit from tak-
ing a closer look at the techniques proposed by Russo and Schoemaker (1992) to reduce
overconfidence in decisions, the ideas of Roxburgh (2003) concerning neutralization of dif-
ferent cognitive biases in strategy, and the list of questions prepared by Kahneman,
Lovallo, and Sibony (2011) for managers wishing to avoid bias in their decisions.
Conclusion
The aim of this study was to highlight the main characteristics of empirical texts on the
heuristics and cognitive biases of entrepreneurs. The results show that there have been
only 25 empirical studies of the heuristics and biases of entrepreneurs, 17 of them pub-
lished after 2006. Most focused on overconfidence and overoptimism treated as depen-
dent or independent variables; the factors explaining them (age, education, experience,
size of the firm, competitive environment, etc.) or explained by them (perception of risk,
promotion focus, preference for short-term financing, investment, estimation of future
sales, etc.) were highlighted, but the findings were not always consistent. Other biases
such as the law of small numbers, the illusion of control, and the planning fallacy also
received some attention, mainly as independent variables. Research on heuristics was

rare, but the findings suggest that they vary according to the context. To date, empirical
studies have shown that entrepreneurs use different heuristics to assess a business oppor-
tunity and that innovative firms use different heuristics from other firms. Research has
also shown that entrepreneurs and managers do not use the same heuristics when making
marketing decisions in uncertain contexts. Methodological frameworks were mostly
based on a synchronic or survey design, in which samples are large, questionnaires, inter-
views and secondary data are used, and data analysis is statistical. Many specific areas for
future research have been identified and discussed in the preceding section. We now have
a much clearer and more complete picture of the knowledge generated by empirical stud-
ies of the heuristics and biases of entrepreneurs, and of what could be done in the future.
This research has its limitations. As pointed out in an earlier section, it is possible
that some empirical studies of the heuristics or cognitive biases of entrepreneurs were
not identified by the statement used for the search; indeed, 4 of the 25 sample papers
were identified only after careful study of bibliographies: those of Cooper, Woo, and
Dunkelberg (1988), Keh, Foo, and Lim (2002), Trevelyan (2008), and Hmieleski and
Baron (2009). Another Townsend, Busenitz, and Arthurs 2010 was identified by a
reviewer of this paper. In addition, other empirical studies on the heuristics or biases of
entrepreneurs may have been published in French or in other languages.
So much still remains to be done that we must hope for the creation of true research
programs on the heuristics and cognitive biases of entrepreneurs programs focusing
not only on the explanations and consequences of heuristics and biases, but also on their
formation and transformation. We need to know more about how to prevent them from
arising, and how to solve the problems they generate in some cases. First, however, it is
important to distinguish between or devise a clearer definition of the notions of heuristic
and cognitive bias. This should result in new lists or classifications of both elements,
opening the door to the emergence of more robust conceptual frameworks, or at least,
frameworks on which there is more agreement.
Acknowledgments
I am very grateful to Christine Gardner for translating the French version of this text. I also want to
thank both reviewers for their very helpful comments.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. I am extremely grateful to Jean-François Tremblay, a professor at UQAM, for his help with this
aspect.
2. In view of this observation, and to avoid duplication, as of now we will take the view that there
have been only 25 studies (not 26) of the heuristics and cognitive biases of entrepreneurs. The
paper by Busenitz (1999) will not be considered for this analysis.
3. Other biases were also treated mainly as independent variables, including the law of small numbers,
the illusion of control, and the planning fallacy. Opinions concerning the impact of the law of small
numbers on the perception of risk were not unanimous. The findings of Simon, Houghton, and
Aquino (2000) suggested that it reduces the perception of risk, whereas Keh, Foo, and Lim (2002)
did not find a link between these two elements. Researchers also agreed that the illusion of control
appeared to reduce the perception of risk, whereas the planning fallacy did not.
494 P. Cossette
Notes on Contributor
Pierre Cossette, although retired, is still an associate professor at ESG UQAM. His interests include
issues relating to the publication process and research integrity.
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Heuristics and cognitive biases in entrepreneurs: a review

L’objectif de la presente recherche est de mettre en evidence les principales

Notions of heuristic and cognitive bias

Lists and classifications of heuristics and cognitive biases

Table 1. Important lists and classifications of heuristics and cognitive biases.

Authors Lists and classifications

Tversky and Kahneman 3 heuristics (representativeness, availability, and anchoring and

 All conceptual or theoretical texts.

Ultimately, the search revealed 26 empirical papers concerned wholly or partially

Analysis of empirical research findings

Table 2. Findings from studies of heuristics and cognitive biases.

References Main Findings

compatible with the firm’s vision, goals, capacities, and current

References Main Findings

References Main Findings

number of employees) of their firms. The negative link seems to be

References Main Findings

surprisingly, a dynamic environment characterized by frequent,

Analysis of methodological frameworks

 Design: Experimental (or, mostly, quasi-experimental), synchronic or cross-

Data collection techniques

Data analysis techniques

Table 3. Methodological frameworks of studies.

Reference Structure Sample Data collection technique(s) Data analysis technique(s)

newspapers and 26 case studies of Indian

Reference Structure Sample Data collection technique(s) Data analysis technique(s)

(basically theme-based analysis, sometimes using applications such as NVIVO), usually

Overconfidence and overoptimism: Distinct constructs and inconsistent results

situation or event will occur (wearing rose-colored glasses). Overconfidence appears to be

Predominance of synchronic or survey design

What heuristics and biases in entrepreneurs should we study?

Heuristics and biases in specific contexts

Formation and transformation of heuristics and biases

Prevention and elimination of inappropriate heuristics and biases

To be more specific, in a highly stimulating paper on hidden traps in managers’ deci-

received some attention, mainly as independent variables. Research on heuristics was

A Social Cognitive Perspective.” Academy of Management Journal 52 (3): 473 488.

Russo, J. E., and P. J. H. Schoemaker. 1992. “Managing Overconfidence.” Sloan Management

Creation.” Entrepreneurship Theory and Practice 16 (2): 23 45.

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All conceptual or theoretical texts.

Design: Experimental (or, mostly, quasi-experimental), synchronic or cross-