Abstract
The prevalence of exaggeration in entrepreneurial pitches is one of the more striking behaviors that entrepreneurs display in their interactions with prospective investors. By viewing such behavior through the lens of interpersonal persuasion and deception theory, we believe that exaggeration’s impact on investor decision making can be understood by examining its close cognitive relationship to both lying and preparedness. Across three studies we investigate the impact that exaggeration and preparedness have on new venture legitimacy and funding potential, and examine the circumstances in which exaggeration may produce beneficial outcomes. For transparency we posted all data, code and study materials on the Open Science Framework, at https://bit.ly/2XfwYky.
•Entrepreneurs who are well-prepared have a high probability of gaining legitimacy.•This is true regardless of whether they exaggerate during the pitch.•However, in 20 percent of cases investors are unable to distinguish between them.•Uses Bayesian modeling to quantify the evidence in favor of the relationship.•Employs a latent instrument and experiments to establish causal inference.