Entrepreneurial Optimism and Experience: Does the Nature of Experience Matter?

At least half of all new businesses fail within the first four years of establishment (Headd, 2001). These failure rates may be partly attributable to the unrealistic optimism displayed by many entrepreneurs. Unrealistic optimism or the optimistic bias, is the tendency of people to report that they are less likely than others to experience negative events, and more likely than others to experience positive events (Weinstein, 1980; Weinstein and Klein, 1996; Helweg-Larsen and Shepperd, 2001). Entrepreneurial experience may provide learning opportunities, thereby allowing experienced entrepreneurs to adopt a more realistic view in subsequent ventures. However, learning from experience is not straightforward. We argue that the nature of entrepreneurs’ experience is important. Hypotheses were tested using data from a representative survey of 703 entrepreneurs in Great Britain. We find that serial entrepreneurs are more likely to be optimistic than portfolio entrepreneurs. Further, we find that experiences with business failure may temper optimism by providing an opportunity for learning. Portfolio entrepreneurs become more realistic but serial entrepreneurs appear to be immune to the potential learning effects of failure. We reflect on these findings and discuss the implications for entrepreneurs and relevant stakeholders.