A Psychological Model of Entrepreneurial Decision Making

Article excerpt

Entrepreneurial decision making refers to the choices made by entrepreneurs when faced with entrepreneurial opportunities. It has the attributes of conventional decision making, such as risk, process, and irreversibility. However, implicit in entrepreneurial decision making are unique features. The decision making process is often difficult to express, complicated to forecast, and sometimes hard to understand. At present, more and more scholars are endeavoring to identify entrepreneurs' cognitive characteristics and perceptual patterns, attempting to explain the "black box" and gain insight into these decision makers' micromental and cognitive mechanisms (Busenitz et al., 2003; Forbes, 1999; Forlani & Mullins, 2000).

Previous researchers have deemed opportunity recognition to be the chief factor influencing entrepreneurial decision making. In the model of opportunity identification and development it is contended that after opportunity recognition comes the investment stage, with opportunity recognition being a sufficient condition for business operation (Ardichvili, Cardozo, & Ray, 2003). From a cognitive viewpoint, Baron (2004) has posited that opportunity recognition in the entrepreneurial mental schema usually consists of two dimensions: profitability recognition and feasibility recognition.

Previous researchers have asserted that opportunity recognition depends on entrepreneurial capability. Entrepreneurial alertness is a particular cognitive schema enabling entrepreneurs to perceive opportunities (Gaglio & Katz, 2001; Kirzner, 1992). It can also be seen as a personal sensitivity to business information, expressed as shrewd evaluation, market inspiration, and insightful rapid judgment. Prior knowledge has been considered the cognitive basis of opportunity recognition (Shane, 2000). Entrepreneurs' existing stocks of information have an impact on how they seek customers and markets, search for suppliers, seize capital, and engage in other venture actions. Prior knowledge is also the root cause of information asymmetry.

In this study, first the cognitive characteristics of entrepreneurs (entrepreneurial alertness and prior knowledge) were identified as having key roles in impacting opportunity recognition. Then the impact of opportunity recognition on entrepreneurial decision making was analyzed. Ultimately cognitive characteristics and opportunity recognition were linked to entrepreneurial decision making, forming a causal model to illustrate the micromechanism of entrepreneurial decision making.

METHOD

Questionnaires

The questionnaires used in the study were all 7-point Likert scales with acceptable reliability and validity coefficients. The Entrepreneurial Alertness Questionnaire developed by Miao (2006) contains a total of 15 items, including three factors: sensitive foresight, explorative prospecting, and redefining framework. The Prior Knowledge Questionnaire derived from Shane's (2000) research, includes two dimensions: special interest and industrial knowledge. The Entrepreneurial Opportunity Questionnaire includes two information dimensions: feasibility recognition and profitability recognition. It has a total of 30 items (Miao, 2006). The Entrepreneurial Decision-Making Questionnaire, comprising six items, was developed by the author and includes three dimensions of information: speed of decision-making, degree of social identity, and decisionmaking accuracy.

Sampling Method

The sampling method was based on the operational definition of entrepreneurs according to the Global Entrepreneurship Monitor (GEM; Reynolds et al., 2005): top managers engaged in new business venture decision making for established enterprises for more than 42 months. From October 2005 to March 2007, response samples were collected from 158 enterprises in the United Kingdom and China. We distributed 468 questionnaires and recovered 327 valid copies with an effective recovery rate of 69. …