The knowledge required to run a successful business varies across activities and industries. Dynamic, complex and uncertain markets tend to require more (specific) knowledge than activities undertaken in stable, simple and certain environments.
Realistic entrepreneurs will have a good idea of what they know and do not know, and when and for which tasks they need outside help.
We assume that general knowledge in terms of, for example high education or general entrepreneurial experience enhances over optimism and that more specific knowledge about running a business in a particular industry makes emerging entrepreneurs more realistic regarding (future) venture performance.
In situations where entrepreneurs confronted with high levels of environmental uncertainty, the level of required knowledge is often unrealistically high, forcing entrepreneurs to rely more on heuristics to make decisions (Busenitz and Barney, 1997, p. 10).
Indeed, the cognitive bias of overoptimism is found to be greatest for complex tasks, forecasts with high levels of uncertainty, for undertakings without rapid and just feedback (Fischoff et al., 1997; Griffin and Tversky, 1992) and in ambiguous environments (Camerer and Lovallo, 1999).
According to Parker (2006) entrepreneurs would be better off forming relationships with outsiders, such as professional advisors, because they are objective, detached and have the knowledge to counteract unrealistic optimism.
Similarly, Bhandari and Deaves (2006) advocate third-party advice to entrepreneurs who do not have relevant experience or are not willing to engage in relevant training or education. However, entrepreneurs are often stubborn and sometimes ignore the advice of experts (in particular if this advice does not align with their own ideas).