Counterfactual thinking and venture formation: The potential effects of thinking about "what might have been"

What factors lead some individuals, but not others, to start new ventures? Early efforts to answer this question in terms of the personal characterist ics of entrepreneurs met with only modest success. Thus, recent research ha s 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, counterfactu al thinking. This refers to imagining "what might have been" in a given sit uation-reflecting on outcomes and events that might have occurred if the pe rson in question had acted differently or if circumstances had somehow been different. Several considerations suggest that entrepreneurs may be less likely than o ther persons to engage in such thought. For example, they often adopt a str ong future-oriented perspective that may reduce their tendency to reflect o n past events. Similarly, recent findings suggest that entrepreneurs show i ncreased susceptibility to certain types of cognitive errors, ones that lea d them to anticipate positive future outcomes (e.g, overconfidence, the ill usion 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 coun terfactual thinking than other persons and therefore less likely to experie nce feelings of regret over disappointing past events (e.g, missed opportun ities). It was also suggested that a reduced tendency to engage in counterf actual thinking would diminish entrepreneurs' susceptibility to the hindsig ht bias-a tendency to assume that past events had to turn out as they did a nd hence; were more predictable than they actually were. It was reasoned th at reduced susceptibility to the hindsight bias might make it easier for en trepreneurs to admit past mistakes to themselves and others. To test these hypotheses, three groups of individuals-entrepreneurs (person s who had recently started their own businesses), potential entrepreneurs ( persons who expressed a strong desire to start a new venture), and non-entr epreneurs (persons who expressed little or no interest in starting a new ve nture)-were compared with respect to several measures of counterfactual thi nking. 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. I n addition they found it significantly easier to admit past mistakes both t o 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 individual s to perceive situations in less favorable terms (e.g., as riskier, less pr omising) than would otherwise be the case. Entre; preneurs' relatively low tendency to engage in counterfactual thinking may minimize such reactions a nd so contribute to their decisions to start new ventures. (C) 1999 Elsevie r Science Inc.