Cognitive Biases in Entrepreneurship: Understanding the Determining Role of Demographics and Firm Characteristics

This study aims to examines whether the cognitive biases - optimism, overconfidence, illusion of control, and self-serving attribution differ across Bangladeshi Small and Medium Sized Enterprises (SMEs) based on demographics and firm-specific characteristics. . Primary data were collected through a structured questionnaire from 354 SME entrepreneurs across four purposively selected cities: Dhaka, Khulna, Rajshahi, and Jashore, achieving a 97.52% response rate. Convenience sampling was used to choose individual SME owners. Since the data in this study had a non-normal distribution and demographic and the firm-related variables were categorical, non-parametric statistical tests were used to address the research objective. Cognitive biases across several categories of SME entrepreneurs were compared using the Kruskal-Wallis H and Mann-Whitney U tests. The findings reveal that the cognitive biases among SME entrepreneurs significantly vary across both demographic and firm characteristics. Specifically, optimism is associated with education level, source of ownership, location, and business sector. Overconfidence significantly relates to age, source of ownership, location, and business sector. The illusion of control is influenced by an entrepreneur’s age, experience, and firm location. At the same time, the tendency to make self-serving attributions is linked to factors like education, ownership, age, location, and the size of the business. Notably firm age does not have a significant effect on any cognitive bias. These findings highlight the heterogeneous nature of cognitive biases among SME entrepreneurs and call for tailored interventions that address both individual and firm-level factors to improve decision-making.