Positive Illusions and New Venture Creation : Conceptual Issues and an Empirical Illustration

This paper discusses the nature and role of positive illusions in the exploitation of new ideas and innovation leading to the development of new enterprises and industries. Positive illusions imply misperceptions of oneself and the environment that can lead to faulty investments and bankruptcies. However, without the optimistic misperceptions of one's own abilities and opportunities that positive illusions imply, little or nothing would happen. Thus, illusions that lead to initiative and commitment are crucial to create and exploit new innovations, even though venturing into new business areas always involves risk and potential failure. We discuss how entrepreneurs, public authorities, and the media might influence such illusions to stimulate innovative initiatives, as well as how entrepreneurs can adjust their misperceptions to avoid negative consequences without killing initiative. The paper is primarily conceptual and draws on insights from literatures such as cognitive psychology, strategy, management, and entrepreneurship. In our discussion we also utilise examples from blue mussel farming, which represents a potentially important innovation within the Norwegian aquaculture industry