Applications of behavioral finance to entrepreneurs and venture capitalists: Decision making under risk and uncertainty in futures and options markets

Abstract

A key dimension of entrepreneurship is risk-taking behavior, and often it is assumed that entrepreneurs exhibit a higher tolerance for risk than non-entrepreneurs. However, empirical evidence provides mixed findings, raising the question whether entrepreneur's judgment is influenced by emotion and heuristics which leads them to misperceive the risk in the market. Our findings support this idea. Empirical results indicate these investors generally take more risk than would be anticipated. Higher risk propensity is due to probability weighting and is also consistent with the idea that entrepreneurs and possible venture capitalists perceive risky situations more optimistically than non-entrepreneurs. © 2011 Springer Science+Business Media, LLC.