Forlani and Mullins (2000)
What factors lead entrepreneurs to perceive new ventures as risky?
Why do entrepreneurs sometimes pursue riskier ventures and sometimes less risky ones?
This paper aims to examine the role and antecedents of entrepreneurs’ risk perceptions in their new venture decisions. They argue that few studies explore the role of risk in entrepreneurial decision making and also most studies focus on investors’ perspectives, not entrepreneurs’ perspectives.
What constitutes risk? They argue that variability and hazard of losses in entrepreneurship. Risk propensity and risk perception are also used in this study.
This study employed a 2 (variability: high vs low) x 2 (hazard: over target vs under target) full factorial within-subject experimental design. The four scenarios have equal expected values. Subjects were CEOs (n = 78) and they were presented with a scenario that asked them to imagine that they were about to undertake a new venture. Four potential new venture descriptions were presented, all were in the same industry, required similar and manageable levels of start-up capital. The ventures were rotated to eliminate possible order effects.
Then subjects were asked to rate a three-item scale on the amount of risk they perceived in each venture. Next, they were asked to indicate which venture they would choose. Finally, the manipulation check was asked.
The overall findings show that entrepreneurs’ new venture choices were influenced by risk propensity and perception. Subjects were more likely to choose high hazard than low hazard ventures. Also, they were more likely to choose low variability ventures. But in this study, risk propensity does not influence risk perception, meaning that risk propensity seems to directly influence venture choice behavior. This suggests that entrepreneurs are more likely to choose new ventures by looking at levels of hazard or potential gains rather than the variability of loss.
What I like about this study is that they studied similar to my main interest which is the new venture decision. They also used scenario experiments. However, what I still don’t understand is how they measure the riskiness of new venture choices. Also, the scale they used for the manipulation check was not clearly shown.
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