Risky Decisions and the Family Firm Bias: An Experimental Study Based on Prospect Theory

Maximilian Lude and Reinhard Prügl

Entrepreneurship Theory and Practice, 2019, vol. 43, issue 2, 386-408

Abstract: In this article, we look at how a family firm signal affects decision making of nonprofessional investors. Grounded in prospect theory and supported by empirical evidence from a choice-based experimental study ( N  = 418) backed by a qualitative study, we demonstrate a behavioral bias induced by the family firm signal. This family firm bias shifts nonprofessional investors’ preferences toward the high-risk alternative in a choice situation. Accordingly, processing the family firm information seems to moderate risk aversion as risk avoidance is decreased in the gain domain, while risk seeking is reinforced in the loss domain due to trust and longevity associations tied to the family firm signal.

Keywords: decision making; prospect theory; family firm perception; experimental methods; family firm bias (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:entthe:v:43:y:2019:i:2:p:386-408

DOI: 10.1177/1042258718796078

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