Learning from Feedback: Evidence from New Ventures
This paper explores how new venture competitions are helpful to entrepreneurs. In a regression discontinuity design using data from 87 competitions in 17 U.S. states, I show that winning is useful. While cash awards matter, winning is independently valuable in ways inconsistent with certification. Competitions instead seem to facilitate learning. I isolate learning by comparing lower and higher ranked non-winners across competitions in which they did and did not observe their standing. There is an economically large effect of negative feedback on venture abandonment. Cross-sectional variation suggests that founders treat their ventures as real options and are Bayesian updaters.
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Document Object Identifier (DOI): 10.3386/w23874
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