Using cognitive theory to explain entrepreneurial risk-taking: Challenging conventional wisdom

Though it occupies the center of most definitions of entrepreneurship, the concept of risk-taking and its linkages with other constructs (most notably personal traits) have been difficult to capture. As a result, it has been difficult to explain why entrepreneurs rush in to take advantage of opportunities that others fail to see or act upon. However, research on social cognition may shed new light on these challenging issues (Shaver and Scott 1991), providing useful frameworks that differentiate entrepreneurs from others while predicting differences in risk-taking behavior. Within the strategic management literature, Dutton and Jackson (1987) adopted categorization theory as a conceptual framework to explain how decision-makers evoke alternate strategic decision frames. They argue that the attributes of a particular issue cause the decision-maker to categorize that strategic issue in different ways, and this heuristic guides the meaning of a stimulus by directing attention toward some of its elements and away from others. Building upon this work and the knowledge structure literature, Gooding (1989) developed decision frames concerning perceptions of strengths/weaknesses and opportunities/threats. Using distinctive and equivocal data in scenarios, he found that distinctive data tended to evoke the same decision frame in all subjects, whereas equivocal data led to different decision frames among subjects. In other words, in the absence of a particular stimulus (i.e., a scenario is equivocal in nature), individuals tend to resort to a chronic frame of reference when interpreting those data. This research produced some revealing results, but these studies were not constructed to investigate the unique responses of entrepreneurs when faced with common circumstances. To extend this area of inquiry, we designed our study using a scenario approach to determine if entrepreneurs exhibit evidence of unique cognitive categorization processes when they are presented with equivocal data. Our findings proved interesting. As predicted, entrepreneurs did not vary significantly in their responses to a risk propensity scale, meaning that they did not perceive themselves as being any more predisposed to taking risks than nonentrepreneurs. This is consistent with previous findings. However, multivariate tests revealed that entrepreneurs categorized equivocal business scenarios significantly more positively than did other subjects, and univariate tests demonstrated that these