Week 44: Mullins and Forlani 2005 Flashcards
Missing the Boat or sinking the boat
What does the phrase “missing the boat” mean in entrepreneurial decision-making?
“Missing the boat” refers to the likelihood of overlooking an attractive opportunity and losing the potential gains from that opportunity.
What does the phrase “sinking the boat” mean in entrepreneurial decision-making?
“Sinking the boat” refers to the likelihood that a new venture will fail, resulting in financial losses for the entrepreneur.
What are the two key elements of risk in entrepreneurial decision-making?
Likelihood of loss (Will I lose?)
Magnitude of loss (How much will I lose?)
How does using personal funds influence entrepreneurial decisions?
Entrepreneurs using personal funds tend to make more cautious decisions compared to when they use external investor money.
What is the “House Money Effect” in entrepreneurship?
The House Money Effect refers to the tendency of people to take bigger risks when they are gambling with money that isn’t their own (e.g., investor money).
How does risk perception differ from risk propensity in entrepreneurs?
Risk perception is how an entrepreneur assesses the level of risk in a situation, while risk propensity is the natural tendency to either take or avoid risks.
What is risk propensity in entrepreneurial decision-making?
Risk propensity refers to a person’s general tendency to take or avoid risks in a specific context.
High risk propensity: More comfortable taking risks.
Low risk propensity: Avoids risks and prefers safer options.
What is the Competency Hypothesis in entrepreneurship?
The Competency Hypothesis suggests that people with higher skills in a specific area feel more confident and are more willing to take risks in that domain.
What is Attribution Theory in the context of entrepreneurial risk-taking?
Attribution Theory states that if entrepreneurs attribute their past successes to their own skills rather than luck, they are more likely to take bigger risks in future ventures.
How does the likelihood element of risk influence entrepreneurial decisions?
Entrepreneurs avoid ventures with a high likelihood of loss, even if the potential gains are significant, as failure is perceived as more impactful than missing an opportunity.
How does the magnitude element of risk influence entrepreneurial decisions?
Entrepreneurs are more willing to accept bigger potential losses if there is a higher likelihood of success.
What are the three key components of risk, according to Yates and Stone?
The three components of risk are:
Potential losses
Significance of those losses
Uncertainty of those losses
How do entrepreneurs with high risk propensity make decisions?
Entrepreneurs with high risk propensity give less weight to potential losses and focus more on potential gains, making them more likely to choose high-risk ventures.
How does risk perception influence entrepreneurial choices?
Entrepreneurs with lower risk perception see opportunities as less risky, which makes them more likely to choose high-risk, high-reward ventures.
What is the difference between contextual and individual difference factors in entrepreneurial decisions?
Contextual factors refer to the situation the entrepreneur is in (e.g., financial exposure).
Individual difference factors refer to the personal traits of the entrepreneur (e.g., risk perception, skills).
Why do entrepreneurs often pursue risky ventures to become market pioneers?
Entrepreneurs pursue risky ventures to become market pioneers, aiming to set industry standards and achieve big rewards, despite the uncertainties involved.
