Entrepreneurial Strategic Decision-Making

Entrepreneurial Strategic Decision-Making

A Cognitive Perspective

Patrick A.M. Vermeulen and Petru L. Curseu

Strategic choices made by entrepreneurs have major consequences for SME performance. This book explores the factors that influence entrepreneurial strategic decisions using a cognitive theoretical framework.

Chapter 2: The Decision-making Entrepreneur: A Literature Review

Petra Gibcus, Patrick A.M. Vermeulen and Elissaveta Radulova

Subjects: business and management, entrepreneurship

Extract

Petra Gibcus, Patrick A.M. Vermeulen and Elissaveta Radulova 2.1 RATIONALITY AND GENERAL DECISION THEORY In this section we shall elaborate on the general theoretical approaches in decision-making from a rationality perspective. An important part of the literature on strategic decision-making assumes that it is an inherently rational process. ‘Rationality is the reason for doing something and to judge a behaviour as reasonable is to be able to say that the behaviour is understandable within a given frame of reference’ (Butler, 2002: 226). Economists equate rationality with utility maximization, an assumption in which individuals maximize their expected utility (Bell et al., 1988). This implies that decision-makers are able to choose the most optimal alternative and always strive for utility maximization, hence the decision-maker acts purely instrumentally. Rationality is strongly related to behaviour that is calculated and instrumental. Thus, rational behaviour is that type of behaviour which is sensible or logical in pursuing goals (Dean and Sharfman, 1993). There are different types of rationality distinguished in the literature. Noorderhaven (1995: 47) presents some of the most important: ● ● ● Substantive rationality: the alternative that is objectively best is chosen. No imperfections or logical errors are assumed. Instrumental rationality: the right means are chosen in relation to an end, given the decision-maker’s belief system. Logical errors are not assumed, but the decision-maker’s belief system does not necessarily correspond to objective reality (Walliser, 1989). Procedural rationality: the extent to which the decision process involves the collection of information relevant to the decision and the reliance...

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