Academic journal article Academy of Entrepreneurship Journal

Beyond Risk Propensity - the Influence of Evaluation Period and Information Relevance on Risk Taking Behavior

Academic journal article Academy of Entrepreneurship Journal

Beyond Risk Propensity - the Influence of Evaluation Period and Information Relevance on Risk Taking Behavior

Article excerpt


Controlling dispositional risk propensity, we investigate the extent to which entrepreneurial students' risk taking behavior changes due to the length of evaluation period they adopt and relevance of the feedback they receive. Using a 2 (group membership: entrepreneurs hip vs. non-entrepreneurs hip students) x2 (evaluation period: long vs. short) x2 (information relevance: relevant vs. irrelevant) factorial design, we assess the betting amount of 256 entrepreneur and non-entrepreneur students in a computer-facilitated game. We find that in general, entrepreneur students take higher risks than non-entrepreneur students. A longer evaluation period leads to higher risk taking in similar extent by entrepreneurs and non-entrepreneurs. Remarkably, entrepreneurs and non-entrepreneurs react to information relevance differently: entrepreneurs take higher risks when receiving relevant (vs. irrelevant) information and non-entrepreneurs take lower risks when receiving relevant (vs. irrelevant) information. These results suggest that when information is relevant, entrepreneurs take it as challenge, whereas non-entrepreneurs take it as threat.


Entrepreneurs face and respond to risks every day (Sarasvathy et al, 1998). Entrepreneurial researchers have long debated whether entrepreneurs are different than others in the way they perceive and respond to risks. For some scholars, the essence of being an entrepreneur is taking risks and functioning in less structured environments in which uncertainties are welcomed rather than feared (Cantillon, 1755 [1979]; Knight, 1921). Others argue that entrepreneurs are no different than others in the way they perceive and take risks (Brockhaus, 1980; Palich and Bagby, 1995). Still other researchers maintain that entrepreneurs might be more risk averse than the general population (Xu and Ruef, 2004).

One reason for such diversity might be the different risk conceptualizations that researchers adopt (Sitkin and Pablo, 1992). Two general approaches to entrepreneurial risk taking can be distinguished from previous literature. In some accounts, entrepreneurial risk taking behaviors (the decision-making behaviors in risky contexts) are considered relative stable behaviors that stem from innate, dispositional traits such as risk taking propensity (Stewart and Roth, 2001). Accordingly, entrepreneurs and non-entrepreneurs might differ in their general dispositions towards risk and such differences tend to persist across a variety of contexts and environments. Alternatively, risk behaviors can be conceptualized as the output of a contextspecific judgment process. From this perspective, individual's risk behaviors largely result from contextual and environmental factors that influence how they view, frame, and solve the problem at hand (Kahneman and Tversky, 1979; Tversky and Kahneman, 1991). Accordingly, influencing how decision makers view problems should alter their behaviors, making them either more or less likely to engage in risky behaviors.

Whereas individuals' actual risk behavior might be a combination of dispositional risk propensity and environmental factors, any study investigating the risk taking behaviors of entrepreneurs vs. non-entrepreneurs has to control for risk taking propensity and simultaneously evaluate the influence of decision making context. A growing body of research suggests that investment time horizon (i.e., the choice of evaluation period) is an important contextual factor that influences risk framing and risk behavior (cf., Behartzi and Thaler, 1999; Gneezy and Potters, 1997; Gneezy et al., 2003; Klos et al., 2005). The longer time horizon decision makers adopt, the longer the period that they choose to evaluate their decision outcome, and the less likely that they will experience loss. Consider an investment option that offers equal chances to win $200 or to lose $100. The probability of losing money after one independent trial is 0. …

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