Entrepreneuring as a puzzle: an attempt to its explanation with truncation of subjective probability distribution of prospects

Abstract

This research presents entrepreneuring as a puzzle where entrepreneurs venture at a risk‐return level that is worse than that of the private equity index and much worse than the public equity index. Under subjective rationality, we explain this puzzle by the possibility that entrepreneurs configure their outlook by dismissing some possible future performance states. Their forward view reflects a truncated and conditional distribution with overcredence. The unfavorable odds under a nontruncated distribution become very attractive after truncation. Copyright © 2008 Strategic Management Society.