Fallacy of IT Prowess: Influence of IT-competence on Assessments and Decisions in IT

Abstract: We examine how lack of IT-competence adversely affects errors in assessing self IT-competence. This bias in self-assessment has been largely ignored in past studies, which assume that the less competent-in-IT do not systematically report their IT-competence as high. Next, we examine how lack of IT-competence adversely affects errors in assessing others’ IT-competence. This failure in assessing others’ IT-competence is often ignored by many decision-makers, who seem to believe that anyone can correctly hire the highly competent-in-IT. Using the data from venture capitalists (VCs) and ventures, we find that increase in IT-competence decreases errors in assessing IT-competence of self and of others. Another finding is that an increase in IT-competence increases the tendency to over-assess the highly competent-in-IT, and to under-assess the less competent-in-IT. Furthermore, VCs who are less competent-in-IT are less likely to invest in ventures that are highly competent-in-IT; whereas, they are more likely to invest in ventures that are less competent-in-IT. Another interesting finding is that VCs do not have to be perfectly competent-in-IT to minimize their errors in assessing IT-competence. Rather VCs with average IT-competence will fare no worse than VCs with high IT-competence.