Optimistic founders are more likely to launch companies, but they are also less likely to react to vital feedback that contradicts their vision. They are les

Optimistic founders are more likely to launch companies, but they are also less likely to react to vital feedback that contradicts their vision. They are less innovative than less optimistic founders as a result. >Abstract >Extant research shows that entrepreneurs are typically overly optimistic about their ventures’ prospects, and that such optimism hampers performance. We analyze how dispositional optimism affects the adjustments to entrepreneurs’ expectations after they receive negative feedback on their task performance. We then explore the relationship between optimism and the effectiveness of innovation. Exploiting unique firm-level data and a laboratory experiment involving 205 entrepreneurs, we find that dispositional optimism is negatively associated with both the likelihood and extent of belief updating in response to negative feedback. Furthermore, dispositional optimism triggers a discrepancy – between innovation inputs and outputs – that reduces a firm’s innovation effectiveness.