Abstract
INTRODUCTION 484 I. THE PUZZLES OF ENTRY 488 A. The Assumption of Entrant Rationality: Empirical Findings vs. Economic Theory 488 1. The First Puzzle: The Prevalence of Negative Net Present Value Entry 490 2. The Second Puzzle: Entrants’ Insensitivity to Predictors of Future Profitability 492 3. The Third Puzzle: An Inferior Average Performance of Startup Entrants 494 B. Can the Rationality Assumption be Salvaged? 497 1. Maintaining the Rationality Assumption: Windows of Opportunity, Limited Information, and the Fruits of Learning 497 2. Modifying the Rationality Assumption: Maximizing Expected Utility with Negative Net Present Values 501 II. A BEHAVIORAL ANALYSIS OF ENTRY DECISIONMAKING ..... 503 A. Solving the First Puzzle: The Processes of Entrants’ Overconfidence 504 1. Optimistic Bias 505 2. The Desirability Bias and Related Phenomena 508 3. The Illusion of Control 512 B. Solving the Second Puzzle: The Side Effects of Entrants’ Overoptimism 514
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