How do entrepreneurs use reference values during the planning process?

Nascent entrepreneurs often overestimate the likelihood of success when planning their own activities, which usually results in excess market entry. But how do entrepreneurs adjust their expectations when they are given historical reference values of comparable projects? Does knowing the historical odds of success help entrepreneurs to make informed decisions about starting a venture by developing more realistic plans and expectations? Drawing on a unique dataset of reward-based crowdfunding initiatives that encompasses the different development steps starting from planning to the ultimate outcome of the campaign, we investigate whether and how nascent entrepreneurs use information on historical outcomes of comparable projects. Our findings suggest that entrepreneurs irrationally use the information to adjust their estimates to account for their belief that they are better than others once they see the historical values, thus resulting in an even higher level of optimism. This result holds across different levels of education, occupation, work experience, age, and gender. Finally, we show that entrepreneurs suffering from over-optimism driven by the irrational use of reference values are more likely to eventually launch a crowdfunding campaign and are also more likely to fail, indicating that the irrational use of reference values has meaningful economic consequences for entrepreneurs."