Over-confident entrepreneurs could be a reason why so many businesses fail in their first few years, research by the University of Leicester has revealed.

According to the study, which was funded by the Economic and Social Research Council, businesspeople who are most confident in their own ability are the ones most likely to fail.

This is because they tended to jump into new business ventures without sufficient research into the competition and the size of the market.

The university psychologists concluded that those people who were "full of themselves" - along the lines of some of the candidates in the hit television show The Apprentice - were most likely to venture into markets that were too small to accommodate another profitable business.

The study was conducted by Dr Briony Pulford and Professor Andrew Colman, who set up a game to simulate market conditions. Participants stood to gain or lose money based on decisions they made in different market scenarios, and had to choose whether or not to open restaurants given different market scenarios.

"When success depended on skill, overconfidence tended to cause excess entry into a marketplace," said Dr Pulford of the School of Psychology at the University of Leicester.

"Market-entry decisions tend to be over-optimistic, with the inevitable result that new business start-ups tend to exceed market capacity, and many new businesses fail within a few years.

"Another finding was that excess entry was much more frequent when market capacity was small, suggesting that entrepreneurs do not take sufficient account of market capacity," he added.

"Our findings have practical implications for people starting new businesses. They should beware of overconfidence, and they should be especially wary when entering small markets or markets that seem to present easy business opportunities, because over-entry seems most likely in these circumstances."