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This is a separate page of the E section of the Glossary
Behavioral finance FAQ / Glossary (Entrepreneur)
Dates of related message(s) in the
Year/month, d: developed/ discussed, i: incidental
Behavioral-Finance group (*):
08/11i + see risk tolerant,
behavioral corporate management
What makes entrepreneurs tick?
The psychology of
business creation (start up) stays largely in the realm of rules
of thumbs and heuristics.One reason is that there are many roads to entrepreneurship, therefore it is not
too easy, it might even be reductive and simplistic to believe in clear paradigms...
or recipes.=> Better leave the question open.
Which does not exclude to study the issue closely, scientifically whenever
possible.The existing approaches come often from
practitioners.
They have their operational value (even if they might seem shallow and conventional,
as seen below).They bring some interesting hints about:
entrepreneurs should better avoid.
Preliminary findings
No stereotype about them.
Do not even call them capitalists, managers or whatever!
The main findings are that...
different idiosyncrasies.Two explanations here:
They tend to be
independent minds
(a common trait, see below).Thus they cannot match a unique stereotype.
types of businesses, every one with
different skills.To take examples, equipment manufacturing does not need the same skills
than show business.
(see behavioral corporate management).
Entrepreneurs and managers have a few similarities but also some deeply opposite
traits.
savings ), but they need to find capital
* Anyway they usually have to put at risk the money they own, if not who
will trust them?
* But they also have to convinceinvestors and lenders that they
will use their money wisely and in their best interest.
Straying from the herd to find new pastures.
But does it explain all?
Whatever the differences between entrepreneurs, as seen above, a few similarities
exists in their attitudes and abilities, even if they cannot be generalized.
Many entrepreneurs have been found to be:
1) Active and non conventional
innovation
quo, verging on (creative)
rebellion,
, even on the basis of simplified analysis
(heuristic),
, eager to understand situations and evolutions,
Able to detect new techniques, hidden opportunities, problems to solve,
needs to fill,Able to communicate with people that could bring the needed
(scientific, business...) knowledge and...the needed money
In other words, opportunistic and reactive:
able to seize ...luck when it passes by,
and to adapt when the situation needs it.2) Self-confident
risk / uncertainty tolerant than other
professionals, i.e. managers.They are abler to take risky decisions under stress.
This has something to do with their dopamine level
as neuroeconomic experiments have shown.
overconfident, as statistics show a very high rate of failure, for new
businesses particularly) and more
optimistic about
the situation,Although maybe, deep inside themselves, rather insecure.
Let us not get too far into Sigmund-like interpretations, but this feeling might
explain their drive to take initiatives: this insecurity can make them eager to
prove to themselves that they are better than what they feel.3) Professional
numbers and arithmetic ...obviously.
committed, verging
on obsession. Therefore eager to control things,
cooperate.
Business creation takes more and more place inside networks in which
many firms bring their specific abilities into the value chain.
.
They think they can do it. Is it enough?
The rate of failures
of new businesses in their
first years is
statistically high.
Luckily, those business creator attempts are good for
the general
economy, as it progresses mainly via successes / errors.
for business creation.
"chores".
They usually prefer creative activities.
Is there a good kind of madness?
Initiative cannot be totally rational and emotionless, because it needs often
togo astray from the proven track, the one narrowly considered "rational"
just because it is traditionally followed.It is true that probabilities are against success for new things...
...but on the other hand, a status quo also cannot prosper eternally!Initiative supposes a belief that the fundamental
uncertainty (see uncertainty)
can be defeated, a Promethean bias.It needs often some overconfidence, some exaggerated hope (or greed), some
imprudence in activities such as entrepreneurship, scientific research (which
has to be conceived as a permanent rebellion against academic paradigms),
other explorations, and also social and political initiatives.Now about its results, the dilemma is
how to make the difference between
"good madness" and
"bad madness".
pure illusions (see illusion).Many just fail. Something worse is that some bring chaos.
the system would decay and die because of a general status quo bias.
Also, initiatives, even positive ones are not enough for progress.
Not all initiators are good at developing and managing their initiative.
Other kinds of people might be needed for those "chores".
