James Surowiecki finds that entrepreneurs have a hard time identifying a bad bet:
The 18th-century Irish-French economist Richard Cantillon, who coined the term “entrepreneur,” defined it as a “bearer of risk.” And in 1921 the economist Frank Knight argued that the function of entrepreneurs was to “specialize in risk-taking.” Yet studies of entrepreneurs find that, in general, they’re as risk-averse as everyone else. Only when it comes to starting a business are they daring.
And that’s because the fundamental characteristic of entrepreneurs isn’t risk-seeking; it’s self-confidence. A 1997 study in the Journal of Business Venturing found that entrepreneurs are overconfident about their ability to prevent bad outcomes. They’re also overconfident about the prospects of their business. A 1988 study in the same journal of some 3,000 entrepreneurs found that 81 percent thought their businesses had at least a 70-percent chance of success, and a third thought there was no chance they would fail – numbers that bear no relation to reality. A recent paper called “Living Forever” notes that entrepreneurs are more likely than other people to overestimate their life spans.
The Dish 