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

Publication Date

12/21/2017

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Abstract

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.