Differences between Entrepreneurs and Managers in Large Organizations: Biases and Heuristics in Strategic Decision-Making

Investigates the differences in decision-making processes used by managers in large organizations and entrepreneurs. These differences are examined with respect to two biases and heuristics: overconfidence and representativeness. Overconfidence is defined as overestimating the probability of being right, while representativeness is defined as the tendency to overgeneralize from a few characteristics or observations. The following two hypotheses were studied: 1) entrepreneurs will demonstrate more overconfidence than managers in large organizations, and 2) entrepreneurs will show a greater tendency toward representativeness than will managers in large organizations. Data were obtained via surveys of two populations: 1) entrepreneurs from plastic, electronics, and instrument manufacturing firms, and 2) managers who are responsible for two functional areas (such as marketing or finance) and work for publicly owned organizations with more than 10,000 employees. Results from the logistic regression analysis support both hypotheses and show that there are substantial behavioral differences between managers in large organizations and entrepreneurs. (SFL)