Entrepreneurs Facing Risk: Cognitive Biases and Conditional Choices

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

Theory conjectures that entrepreneurs are more likely than others to make risky choices. However, the empirical evidence is mixed. This paper offers new insights into entrepreneurs’ tendencies to make risky choices, by investigating the circumstances in which entrepreneurs are more/less likely to choose risk vis-à-vis certainty. Drawing on prospect theory, we formulate hypotheses about the greater likelihood that entrepreneurs (compared to others) will choose risk immediately after a positive gain, but will shy away from risk compared to others as the degree of risk increases. The hypotheses are tested using data collected in laboratory-based real money games experiments. We find support for our hypotheses, indicating that entrepreneurs’ bias towards risk is circumstantial. These results have fundamental implications for our understanding of factors guiding entrepreneurial choices under risk - not only for the entrepreneurs but also for their stakeholders.
Original languageEnglish
Publication date2016
Number of pages36
Publication statusPublished - 2016
EventThe DRUID 20th Anniversary Conference 2016: Innovation and the Dynamics of Change - Copenhagen Business School, København, Denmark
Duration: 13 Jun 201615 Jun 2016
Conference number: 38
http://druid8.sit.aau.dk/druid/registrant/index/login/cid/20

Conference

ConferenceThe DRUID 20th Anniversary Conference 2016
Number38
LocationCopenhagen Business School
Country/TerritoryDenmark
CityKøbenhavn
Period13/06/201615/06/2016
OtherThe DRUID Society Conference 2016
SponsorCopenhagen Business School
Internet address

Keywords

  • Risk
  • Entrepreneur
  • Money games
  • Lab experiment
  • Prior gain effect
  • Risk propensity effect

Cite this