Research

How much is too much?

An Asper School researcher examines trust in the early stages of entrepreneurship for a top academic business journal

Xiumei Li
Estimated Read Time:
3 minutes
Xiumei Li
Xiumei Li
Estimated Read Time:
3 minutes
By

Brett Maclaren

We all know what a market leadership claim is, even if you’ve never heard the term. Imagine you’re browsing online and come across an ad for a new AI deepfake-detection tool, built on emerging technology, that is calling itself “The #1 deepfake-detection solution.”

Hearing this a couple of times might just make you more interested in the tool. But what if you keep seeing this, popping up on different websites and in your news feed? Each time you see it, you start thinking more critically: wait, this technology is really new…and wait, in a space where everything is still up in the air, how did they determine it was the #1 deepfake-detection solution anyway?

At what point do you say to yourself, I’m not sure if I can trust this? When is it too much?

Asper Assistant Professor of Business Administration, Xiumei Li, recently published the article Entrepreneurial Market Leadership Claims, Cultural Resonance, and Investor Evaluations in Nascent Markets: The Goldilocks Effect in one of the most prestigious academic journals in the field, the Financial Times 50 (FT50)-ranked Journal of Management Studies to answer this very question.

She and her co-authors, Jade Lo (Drexel University), Derek Harmon (Michigan State University), and V.K. Narayanan (Drexel University), draw on insights from cultural entrepreneurship and psychology…with a key assist from a fairy tale.

The mere exposure effect

Before this project, Li was working on another study, sifting through data, when she noticed a pattern.

This original study was examining how entrepreneurs establish novelty and familiarity to influence potential investors.

She was looking through press release after press release from various entrepreneurial ventures and couldn’t help but notice—many of them were claiming they were a leader in their field, often in a nascent (new) market where evaluation criteria were not yet established (for example, a technology that is just being introduced to consumers).

“It’s not possible that everyone is a leader, right?” Li says. “In an early-stage market, the evaluation metrics are still being developed, and it’s very difficult to verify. Then I became interested in how investors evaluate these types of messages.”

Investors can make decisions that make, or break new entrepreneurial ventures. Companies therefore need to make the case that they are dependable and a good investment.

That’s where psychology came in. She began consulting classic social psychology papers about the mere exposure effect and the two-factor model—the idea that repetition boosts favorability at first but backfires when overdone.

If you repeat a message three times, is it a good thing compared to five or more?

Xiumei Li

Their study became about not what entrepreneurs were claiming, but how often they were claiming it—and how different levels of repetition shaped investor evaluations.

The Goldilocks Effect

By taking an innovative angle—frequency of the message, rather than the message itself—Li and her colleagues distinguished their research from other studies.

With their finger on the pulse on the classic social psychology literature, the team hypothesized that too little, or too much exposure to the market leadership claims would sway the investors away in a nascent market.

If there’s too little messaging, investors would experience a sense of uncertainty, and have a cautious reaction.

If there’s too much exposure to the claim, the research suggests that investors would clue into the fact that they’re being persuaded and resist the influence. It’s a movie that’s working too hard to make you cry.

However, if the claim is repeated within these goalposts—enough to have impact without overdoing it—individuals may experience the “truth effect,” the idea that as something is heard multiple times, it strikes a chord with you, and reduces any uncertainty you may have had—like a movie you get lost in, even though you know it’s pretend.

Their evidence included an archival study and an experiment. In the experiment, participants were exposed to fictional press releases with varying amounts of market leadership claims, then asked how likely they would be to invest.

Here, they found support for their theory in the form of an inverted U-shaped graph—showing that as claim frequency goes up in a nascent market, investor evaluations increase, plateau, and then go back down as the claim frequency gets too high.

The only thing left was to name this phenomenon.

Li says she can’t take credit for the name “The Goldilocks Effect”—that goes to her colleague Derek Harmon—but says “It adds more vividity—and maybe more people are interested in reading it.”

There are no bears or porridge in this paper, but the message stays the same: we’re always trying to find what’s just right, somewhere between too much and not enough.

This article is only a small summation of the insights in Entrepreneurial Market Leadership Claims, Cultural Resonance, and Investor Evaluations in Nascent Markets: The Goldilocks Effect. You can learn more by reading the article online on Journal of Management Studies.

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