Enabling Entrepreneurial Choice

Ajay Agrawal, Joshua Gans and Scott Stern

No 27379, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Entrepreneurs must choose between alternative strategies for bringing their idea to market. They face uncertainty regarding both the quality of their idea as well as the efficacy of each strategy. While entrepreneurs can reduce this uncertainty by conducting tests, any single test conflates the signal of the efficacy of the particular strategy and the quality of the idea. Resolving this conflation requires exploring multiple strategies. Consequently, entrepreneurial choice is enhanced by finding ways to lower the cost of testing multiple strategies, receiving guidance as to the types of tests likely to reduce signal conflation, and optimally sequencing tests based on prior beliefs. This creates a role for judgment that may be provided by third parties such as mentors and investors. We hypothesize that institutions that lower the cost of transmitting and aggregating judgment spur entrepreneurial success.

JEL-codes: D83 O3 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-ent and nep-mic
Note: PR
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Citations: View citations in EconPapers (1)

Published as Ajay Agrawal & Joshua S. Gans & Scott Stern, 2021. "Enabling Entrepreneurial Choice," Management Science, vol 67(9), pages 5510-5524.

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