Of markets,products and prices: The effects of the euro on European firms

The introduction of the euro was initially expected to boost trade by an enormous percentage. Following many downward revisions of original estimates the current consensus estimate amounts to an increase of about 5 per cent. In view of the initial high expectations this is often seen as a dismal result. It is, however, based on aggregate data and may therefore hide important microeconomic gains that arise even for a given level of trade fl ows. This paper uses detailed product and firm level data to shed light on these hidden gains. This paper is based on the EFIGE Report 2008, issued under the same title as Bruegel Blueprint Series Volume VIII. The research leading to these results has received funding from the European Community’s Seventh Framework Programme (FP7/2007-2013) under grant agreement No. 225551 and from the Bank of France. The views expressed in this publication are the sole responsibility of the authors and do not necessarily reflect the views of the European Commission or the Bank of France. We are grateful to Andrew Fielding for editorial support. Opinions expressed in this publication are those of the authors alone.     

Biased and overconfident,unbiased but going for it: How framing and anchoring affect the decision to start a new venture

Cognitive heuristics, biases, and overconfidence have been suggested as an explanation for entrepreneurial entry. Nevertheless, empirical research on the subject has produced mixed findings and has under-explored the cognitive mechanisms leading to overconfidence in entrepreneurial settings. In two within-subject experiments, we focus on three cognitive heuristics—reference point framing, outcome salience framing, and anchoring in conjunctive events—and examine their effects on perceived risk, confidence, required and estimated probabilities of success, and the decision to start a new venture. Our findings show that reference point framing and outcome salience framing affect the decision to enter directly and indirectly via risk perception, but do not affect confidence. In addition, the effect of anchoring is contingent on the congruence between its semantic and its numeric influences. Overconfidence only obtains when the numeric and semantic influences of anchoring are aligned and aimed at enhancing the salience of potential positive outcomes, i.e., through high probabilities of success.