Entrepreneurial decision-making using the knightian uncertainty approach

• Autor(a) principal: Saes,Maria Sylvia Macchione
• Data de Publicação: 2013
• Outros Autores: Martins,André Cavalcanti Rocha, Schnaider,Paula Sarita Bigio
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Revista de Administração (São Paulo)
• Texto Completo: http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0080-21072013000400007
• topic: entrepreneur; decision-making; Knight; adaptive probability theory

The article discusses the behavioral aspects that affect the entrepreneurs' decision making under the Knightian uncertainty approach. Since the profit arising from entrepreneurial activity represents the reward of an immeasurable and subjective risk, it has been hypothesized that innovative entrepreneurs have excessive optimism and confidence, which leads them to invest in high-risk activities. A behavioral model of decision making under uncertainty is used to test the hypothesis of overconfidence. This model is based on Bayesian inference, which allows us to model the assumption that these entrepreneurs are overconfident. We conclude that, under the hypothesis of overconfidence, these entrepreneurs decide to invest, despite the fact that the expected utility model indicates the contrary. This theoretical finding could explain why there are a large number of business failures in the first years of activity.