Risk Worth Taking - Entrepreneurial Behaviour When Faced with Risk and Uncertainty: A Lab Experiment

Are entrepreneurial-oriented individuals different from others in their propensities to take risk and uncertainty? Entrepreneurial-oriented individuals are defined as individuals that show entrepreneurial intentions - the cognitive state that precedes the decision to form a new venture. Cognitive theory suggests differences in risk taking due to individual characteristics. However, entrepreneurship theory did not provide empirical support for such differences. Using data from a laboratory experiment with simple money games, we observe how individuals from two different groups (entrepreneurial-oriented, non-entrepreneurial-oriented) react to different degrees of risk and uncertainty when real monetary incentives are involved in each decision. The analysis reveals significant differences between entrepreneurial and non-entrepreneurial-oriented individuals in their decision making. In particular, entrepreneurial-oriented individuals appear to be more sensitive towards a “house money effect” (increased risk seeking in the presence of a prior gain) and less sensitive towards a “risk propensity effect” (reduced risk avoidance in the presence of increasing degrees of risk). These results have fundamental implications for the understanding of cognitive factors guiding entrepreneurial decision-making.