Entrepreneurs’ Decision-Making Under Different Levels of Uncertainty: The Role of Emotions

September 20, 2013 Editor 0

Abstract

Purpose – This study investigates entrepreneurs’ investment decisions under uncertainty in continued investments where we test the role of emotions to continue or discontinue the investment.Design/methodology/approach – A conjoint analysis is carried out on 101 entrepreneurs’ 3,232 investment decisions. The entrepreneurs were provided with a scenario of an investment where the dependent variable was the entrepreneur’s propensity to allocate further resources to the described investment. They assessed their willingness to allocate further resources to the investment on a seven-point Likert-type scale. The independent variables in our experiment were the experienced emotions of the entrepreneur each of which was described by the two levels of high and low. Findings – It was found that self-confidence, challenge, and hope increase the propensity to continue investments as do increased level of uncertainty. Embarrassment and strain do not increase this propensity however high uncertainty decreases the propensity to continue investments. In contrast to the escalation of commitment theory, embarrassment does not make entrepreneurs more prone to invest under uncertainty. Frustration does not yield significant results, which runs contrary to the theory and our hypothesis finds no support. Research limitations/implications – We focused on a limited number of emotions, and also on one specific moderating factor that impacts the effect of these emotions on the investment decision. Practical implications – To understand the role of their emotions in investment decisions under different levels of uncertainty may help entrepreneurs to improve the quality of their decision making. Originality/value – This study is an experiment where practitioner entrepreneurs participate which increases the ecological validity of the study. Emotions can explain, partly, why entrepreneurs persist with some underperforming projects, but not others. Uncertainty is a powerful moderating variable in the decision-making process. The results enhance existing knowledge about the emotive side of entrepreneurs’ propensity to make investment decisions under uncertainty. The results also supplement and refine existing theories on self-justification.
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Categories: Entrepreneurship

Tags: Entrepreneurs’ Decision-Making