Theory-Driven Entrepreneurial Search

Ankur Chavda, Joshua Gans and Scott Stern
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Ankur Chavda: HEC Paris - Ecole des Hautes Etudes Commerciales
Joshua Gans: University of Toronto - Rotman School of Management; NBER
Scott Stern: MIT - Massachusetts Institute of Technology

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Abstract: How should theory-based entrepreneurs search for strategies to implement their ideas? The theory-based view of strategy posits that decision-makers hold theories about their environment premised on beliefs that should be actively tested. This causal framework, which underlies the theory-based view, also has implications for entrepreneurial search: the process by which entrepreneurs uncover strategies to implement their ideas. In this paper, we develop a Bayesian model where entrepreneurs update their beliefs as they conduct entrepreneurial search. We find several optimal behaviors for theory-based entrepreneurs such as reverting to a previous strategy after finding a relatively poor strategy and continuing to search after finding a relatively good strategy, which are missing when entrepreneurs lack such a theory-based approach. As these predictions align with examples of successful entrepreneurs, our findings both provide a method to empirically identify skilled entrepreneurs and demonstrate the usefulness of applying the theory-based view to entrepreneurial behavior more generally.

Keywords: entrepreneurial search; theory-based view; stopping rule; Knightian uncertainty (search for similar items in EconPapers)
Date: 2024-02-13
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04754849

DOI: 10.2139/ssrn.4706860

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