Overconfidence and optimism in business decisions

Abstract

This paper reviews the existing literature on neoclassical theory and behavioral theory about decision making, overconfidence and optimism biases and their relationship with entrepreneurship, aiming to identify any research gaps on the understanding of behavioral theory with regard to the limited rationality of the agent, the action of the biases in question and analyze their effect on the performance of managers in decision making to be explored in the future. The methodology used in this study is the systematic review of the literature, which allowed the identification and debate of a series of important studies on this topic. The results indicate that, even with a large theoretical framework in the scope of behavioral studies, the study of the biases of overconfidence and optimism presented in the business environment make up a relatively recent field of studies. It was possible to verify that cognitive biases largely affect the decision-making process of business managers, who, depending on the environment in which they are inserted, suffer to a greater or lesser degree from the influence of biases and although there are ways to reduce the influence of cognitive biases in their decisions, it would not be possible to make decisions totally free of their influence.