Risk-taking in entrepreneurial decision-making: A dynamic model of venture decision

Yan Li () and David Ahlstrom ()
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Yan Li: Beijing Institute of Technology
David Ahlstrom: The Chinese University Hong Kong

Asia Pacific Journal of Management, 2020, vol. 37, issue 3, No 11, 899-933

Abstract: Abstract On the basis of the seminal work of Kahneman and Tversky Econometrica, 47(2): 263–292 (1979), this research extends the boundaries of prospect theory in investigating determinants and temporal variation of risk-taking in entrepreneurial decisions, such as creating a new business organization or investing a risky business project. The two experimental studies (1) identify entrepreneurial risk-taking in the gain situation and find reversal of risk preference after a dynamic entrepreneurial learning process, indicating that the framing effect of prospect theory in explaining entrepreneurial risk-taking is conditional; (2) instead of weights, subjective judgment of the possibility of success of a risky project (subjective probability) consistently plays central moderating role in entrepreneurial decisions under uncertainty, and (3) the different effects of subjective probability in the two studies reveal that novice decision-makers are more value-driven, whereas experienced decision-makers, particularly under low probability conditions, tend to be more risk averse regardless of the value of a risky project perceived as long as they have a lack of confidence in eventual success.

Keywords: Entrepreneurial decision; Dynamic learning; Risk-taking; Subjective probability; Subjective value; Asia-Pacific (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s10490-018-9631-7

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