Counterfactual thinking and venture formation

Abstract What factors lead some individuals, but not others, to start new ventures? Early efforts to answer this question in terms of the personal characteristics of entrepreneurs met with only modest success. Thus, recent research has often focused, instead, on the cognitive factors that play a role in this process. The present study sought to add to this growing body of evidence by investigating the potential effects of one cognitive mechanism that has not yet been examined in the context of new venture formation, counterfactual thinking. This refers to imagining “what might have been” in a given situation—reflecting on outcomes and events that might have occurred if the person in question had acted differently or if circumstances had somehow been different. Several considerations suggest that entrepreneurs may be less likely than other persons to engage in such thought. For example, they often adopt a strong future-oriented perspective that may reduce their tendency to reflect on past events. Similarly, recent findings suggest that entrepreneurs show increased susceptibility to certain types of cognitive errors, ones that lead them to anticipate positive future outcomes (e.g., overconfidence, the illusion of control). These biases, too, may reduce entrepreneurs' tendency to focus on past events. On the basis of these and related considerations, it was hypothesized that entrepreneurs would be less likely to engage in counterfactual thinking than other persons and therefore less likely to experience feelings of regret over disappointing past events (e.g., missed opportunities). It was also suggested that a reduced tendency to engage in counterfactual thinking would diminish entrepreneurs' susceptibility to the hindsight bias—a tendency to assume that past events had to turn out as they did and, hence, were more predictable than they actually were. It was reasoned that reduced susceptibility to the hindsight bias might make it easier for entrepreneurs to admit past mistakes to themselves and others. To test these hypotheses, three groups of individuals—entrepreneurs (persons who had recently started their own businesses), potential entrepreneurs (persons who expressed a strong desire to start a new venture), and non-entrepreneurs (persons who expressed little or no interest in starting a new venture)—were compared with respect to several measures of counterfactual thinking. Results indicated that entrepreneurs were significantly less likely than the other groups to engage in counterfactual thinking, and experienced significantly less regret over past events than potential entrepreneurs. In addition, they found it significantly easier to admit past mistakes both to themselves and to others. These findings have potential implications for venture formation. Engaging in counterfactual thinking often generates negative affective states (e.g., feelings of regret, dissatisfaction, envy). Such negative affective states, in turn, can strongly color perceptions and judgments, causing individuals to perceive situations in less favorable terms (e.g., as riskier, less promising) than would otherwise be the case. Entrepreneurs' relatively low tendency to engage in counterfactual thinking may minimize such reactions and so contribute to their decisions to start new ventures.