Cognitive biases and heuristics common in entrepreneurship

1. Overconfidence:

- Results in being overly optimistic of the future
- Helps entrepreneurs face multiple hurdles of starting and managing
- Valuable in persuading others
- Explains why most new ventures fail

2. Representativeness:

- The tendency of judging the probability of an event based on how representative that event is for a class or category of events
- Willingness to generalize based on small sample of events
- Results in inaccurate perception of reality

3. Counterfactual thinking:

- The tendency to think about “what might have been if”
- Often negative in nature and with a sense of regret or disappointment due to missed opportunities
- Can result in pursing mediocre opportunities for new ventures because of fear of missing out on success

This blog post is based on my learnings from the course on ‘entrepreneurship’ offered by Maryland Technology Enterprise Institute, University of Maryland through Coursera (2014).