1. Investigating the influence of cognitive biases and risk perception on the formation of entrepreneurial intentions
- Author
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Alruwaitea, Abdulaziz and Hewitt-Dundas, Nola
- Subjects
Entrepreneurial ,cognition ,cognitive bias ,risk perception ,planned behavior ,entrepreneurship ,overconfidence ,Illusion of control ,Social desirability ,risk propensity ,venture creation - Abstract
The trait approach in the entrepreneurship literature which suggest that entrepreneurs possess risk-taking behavior as a personal attribute has yielded mixed and, in many cases, contradicting results. Subsequently, many scholars, through the cognitive approach, have postulated that entrepreneurs may perceive risks as challenges through a 'rosy lens', while others posit that entrepreneurs may overlook the risks inherent in business opportunities. This disregard of risk changes the perceptions of gains and losses upon opportunity evaluation, consequently making business opportunities seem more desirable than they really are. This notion suggests that entrepreneurs may very well be overly optimistic and misguided by a 'get rich or die trying' attitude that can be highly susceptible to systematic biases. The lack of empirical evidence in previous studies in this risk-perception-based approach represent a gap in the literature which this study seeks to address. Considering entrepreneurship as a process rather than an event, the present study focuses particularly on the pre-foundational phase of new venture creation. The conceptual framework developed seeks to examine the influence of risk perception on the formation of entrepreneurial intentions through its antecedents (i.e., attitudes toward behavior, subjective social norms, perceived behavioral control). Additionally, the baseline line model is then subjected to the moderating effect of cognitive biases (i.e., cognitive deviations from rational thought). By focusing on the influence of two biases, the illusion of control and overconfidence, the study's main theoretical assumption is that cognitive biases will strengthen the indirect relationship between risk perception and entrepreneurial intentions. The findings reached suggest that cognitive biases and risk perception play a strong role in forming entrepreneurial intentions. Indications show that risk perception and entrepreneurial intentions have a significant indirect relationship through attitudes and perceived behavioral control (PBC). In the collectivist culture of Saudi Arabia, no significance has been found for the effect of subjective social norms on potential entrepreneurs. The study contributes to the entrepreneurship literature by considering a multidisciplinary approach that is theoretically driven by intention models (e.g., the theory of planned behavior) and prospect theory.
- Published
- 2022