Discussion paper

DP12523 Man vs. Machine in Predicting Successful Entrepreneurs: Evidence from a Business Plan Competition in Nigeria

We compare the relative performance of man and machine in being able to predict outcomes for entrants in a business plan competition in Nigeria. The first human predictions are business plan scores from judges, and the second are simple ad-hoc prediction models used by researchers. We compare these (out-of-sample) performances to those of three machine learning approaches. We find that i) business plan scores from judges are uncorrelated with business survival, employment, sales, or profits three years later; ii) a few key characteristics of entrepreneurs such as gender, age, ability, and business sector do have some predictive power for future outcomes; iii) modern machine learning methods do not offer noticeable improvements; iv) the overall predictive power of all approaches is very low, highlighting the fundamental difficulty of picking winners; and v) our models can do twice as well as random selection in identifying firms in the top tail of performance.

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Citation

McKenzie, D (2017), ‘DP12523 Man vs. Machine in Predicting Successful Entrepreneurs: Evidence from a Business Plan Competition in Nigeria‘, CEPR Discussion Paper No. 12523. CEPR Press, Paris & London. https://cepr.org/publications/dp12523