The value of cognitive bias: exploring the role of overconfidence and illusion of control in driving business model innovation

Purpose Entrepreneurial cognition plays a crucial role in driving enterprise decision-making and facilitating business change. While most studies on cognitive bias focused on its negative effects, this study aims to investigate the positive influence of cognitive bias on business model innovation (BMI) through the mediating effect of effectuation, which was not found in previous literature. Design/methodology/approach The study use two-wave survey data from 206 startups in China, and structural equation modeling, bootstrap and hierarchical regression methods to test the hypotheses. Findings The results reveal that overconfidence (OC) and illusion of control (IC) positively affect BMI, and effectuation (EF) mediates the relationship between OC/IC and BMI. In addition, environmental hostility is found to moderate the effects of OC/IC/EF on BMI. Originality/value This study conclusion challenges previous assumptions about cognitive bias and extends the research on antecedents of BMI from the perspective of cognition, and provides an important reference for startups to manage cognitive bias and make decision.