Academic journal article Entrepreneurship: Theory and Practice

The Relationship among Biases, Misperceptions, and the Introduction of Pioneering Products: Examining Differences in Venture Decision Contexts

Academic journal article Entrepreneurship: Theory and Practice

The Relationship among Biases, Misperceptions, and the Introduction of Pioneering Products: Examining Differences in Venture Decision Contexts

Article excerpt

Although biases Influence the decision to take entrepreneurial actions, studies have not differentiated among entrepreneurial decision environments. These environments vary greatly and affect which biases arise and their context-specific consequences. Focusing on the role of firm size, age, and type of product introduction, we propose that entrepreneurs in smaller, younger, firms, who are considering pioneering, are morn likely to exhibit Illusion of control, law of small numbers, end reasoning by analogy. These biases contribute to underestimating competition, overestimating demand, and overlooking requisite assets. We hope to spur researchers to examine Information processing across different types of entrepreneurial firms and actions.

**********

In recent years, entrepreneurship researchers have made great strides toward explaining why some individuals proceed with entrepreneurial actions when others do not (e.g., Busenitz & Lau, 1996; Mitchell et al., 2000). Much of this research has concluded that differences in individuals' perceptions about a potential entrepreneurial action play a major role in the decision to proceed (Palich & Bagby, 1995; Simon, Houghton, & Aquino, 2000). For example, Simon and colleagues (2000) found that individuals who perceive lower risk associated with a venture are more likely to decide to start the venture. Similarly, numerous scholars have suggested that perceptions of feasibility and desirability lead to venture formation and other entrepreneurial activities (Bird, 1988; Boyd & Vozikis, 1994; Krueger, 1993; Krueger, Reilly, & Carsrud, 2000).

Other scholars have focused on the role that cognitive biases play in entrepreneurial decision making. Cognitive biases are subjective or predisposed opinions that emanate from specific heuristics (Bazerman, 1998; Busenitz & Lau, 1996). Though biases help individuals cope with their cognitive limitations in uncertain circumstances, they may also result in less rational, less comprehensive decision making because cognitive biases systematically violate the laws of probability (Barnes, 1984). Entrepreneurship scholars examining cognitive biases have concluded that the entrepreneur, that is, the individual who originally founded the venture, may display greater bias because the entrepreneur's decision-making environment can be especially uncertain and complex. In these situations, cognitive biases contribute to the entrepreneur's tendency to hold positive perceptions regarding a potential action (Baron 1998; Busenitz & Barney, 1997).

These initial studies did not differentiate between types of entrepreneurial decisions or new venture environments, implicitly assuming that they were relatively homogeneous with respect to task and context. While this treatment has been reasonable, given the early stage of research on entrepreneurial perceptions and the tremendous progress that has been made, we believe that the next important direction for this stream is to focus on the differential effects of cognitive biases across decision and venture contexts. Countless scholars have asserted that new ventures and decision type vary greatly (Gartner, 1985; Johnson, 1990). Greenberger and Sexton (1988) pointed out that the founders of Wendy's faced very different types of decisions than the entrepreneur running a lemonade stand. Zacharakis and Shepherd (2001) asserted that perceptions and biases vary according to the nature of the venture. They concluded that biases are unlikely to be universally evident; their presence, magnitude, and consequences depend upon the decision task. Similarly, Krueger and colleagues (Krueger, 1993; Krueger & Brazeal, 1994), studying how bias may influence perceived feasibility and desirability, argued that future researchers should distinguish between different types of entrepreneurial decisions, because entrepreneurial risk taking is situation specific. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.