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 7: Entrepreneurial Decision-makers and the Use of Biases and Heuristics

Marijn J.J. de Kort and Patrick A.M. Vermeulen

Subjects: business and management, entrepreneurship

Extract

Marijn J.J. de Kort and Patrick A.M. Vermeulen 7.1 INTRODUCTION In contemporary market economies, small and medium-sized enterprises (SMEs) play a key role (Gibcus et al., 2008). To survive in the changing market economy, companies are forced to make strategic decisions (Schoemaker, 1993). Deciding on the correct course of action can mean the distinction between success and failure of an SME (Brouthers et al., 1998). In the introductory chapter, it was argued that we know much less about strategic decision-making in SMEs than in large organizations. Furthermore, it has been claimed that not enough attention is paid to the ways in which entrepreneurs make decisions (Bakker et al., 2007). This chapter aims to contribute to the understanding of entrepreneurs and the way in which they make strategic decisions. In the cognitive stream of entrepreneurship research, it has been argued that entrepreneurs are more liable to use decision-making biases and heuristics than are managers in large organizations (Busenitz and Barney, 1997). Biases and heuristics are judgemental rules, cognitive mechanisms and subjective opinions that people use to assist in making decisions (Barnes, 1984; Schwenk, 1984; Busenitz and Barney, 1997). This helps entrepreneurs in their decision-making in a complex and uncertain environment, but can also lead to large and persistent biases with serious implications (Barnes, 1984). The representativeness heuristic and overconfidence bias are often mentioned as being critical in understanding entrepreneurial behaviour (for example, Tversky and Kahneman, 1974; Busenitz, 1999). Bakker et al. (2007) argued for more research into the overconfidence...

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