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Experiments on Entrepreneurial Decision Making: a Different Lens Through Which to Look at Entrepreneurship Full Text Available At Full text available at: http://dx.doi.org/10.1561/0300000019 Experiments on Entrepreneurial Decision Making: A Different Lens Through Which to Look at Entrepreneurship Full text available at: http://dx.doi.org/10.1561/0300000019 Experiments on Entrepreneurial Decision Making: A Different Lens Through Which to Look at Entrepreneurship Christian Schade Humboldt-Universit¨atzu Berlin Germany [email protected] Katrin Burmeister-Lamp Humboldt-Universit¨atzu Berlin Germany [email protected] Boston { Delft Full text available at: http://dx.doi.org/10.1561/0300000019 Foundations and Trends R in Entrepreneurship Published, sold and distributed by: now Publishers Inc. PO Box 1024 Hanover, MA 02339 USA Tel. +1-781-985-4510 www.nowpublishers.com [email protected] Outside North America: now Publishers Inc. PO Box 179 2600 AD Delft The Netherlands Tel. +31-6-51115274 The preferred citation for this publication is C. Schade and K. Burmeister-Lamp, Experiments on Entrepreneurial Decision Making: A Different Lens Through Which to Look at Entrepreneurship, Foundations and Trends R in Entrepreneurship, vol 5, no 2, pp 81{134, 2009 ISBN: 978-1-60198-198-1 c 2009 C. Schade and K. Burmeister-Lamp All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, photocopying, recording or otherwise, without prior written permission of the publishers. Photocopying. In the USA: This journal is registered at the Copyright Clearance Cen- ter, Inc., 222 Rosewood Drive, Danvers, MA 01923. Authorization to photocopy items for internal or personal use, or the internal or personal use of specific clients, is granted by now Publishers Inc for users registered with the Copyright Clearance Center (CCC). The `services' for users can be found on the internet at: www.copyright.com For those organizations that have been granted a photocopy license, a separate system of payment has been arranged. Authorization does not extend to other kinds of copy- ing, such as that for general distribution, for advertising or promotional purposes, for creating new collective works, or for resale. In the rest of the world: Permission to pho- tocopy must be obtained from the copyright owner. Please apply to now Publishers Inc., PO Box 1024, Hanover, MA 02339, USA; Tel. +1-781-871-0245; www.nowpublishers.com; [email protected] now Publishers Inc. has an exclusive license to publish this material worldwide. Permission to use this content must be obtained from the copyright license holder. Please apply to now Publishers, PO Box 179, 2600 AD Delft, The Netherlands, www.nowpublishers.com; e-mail: [email protected] Full text available at: http://dx.doi.org/10.1561/0300000019 Foundations and Trends R in Entrepreneurship Volume 5 Issue 2, 2009 Editorial Board Editors-in-Chief: Zoltan J. Acs George Mason University [email protected] David B. Audretsch Max Planck Institut [email protected] Indiana University [email protected] Editors Howard Aldrich, University of North Carolina Sharon Alvarez, Ohio State University Mark Casson, University of Reading Per Davidsson, Queensland University of Technology William B. Gartner, Clemson University Sharon Gifford, Rutgers University Magnus Henrekson, The Research Institute of Industrial Economics Michael A. Hitt, Texas A&M University Joshua Lerner, Harvard University Simon Parker, University of Durham Paul Reynolds, Florida International University Kelly G. Shaver, College of William and Mary David Storey, University of Warwick Patricia Thornton, Duke University Roy Thurik, Erasmus University Gregory Udell, Indiana University Sankaran Venkataraman, Batten Institute Paul Westhead, Nottingham University Business School Shaker Zahra, University of Minnesota Full text available at: http://dx.doi.org/10.1561/0300000019 Editorial Scope Foundations and Trends R in Entrepreneurship will publish sur- vey and tutorial articles in the following topics: • Nascent and start-up • Business angels entrepreneurs • Bank financing, debt, and trade • Opportunity recognition credit • New venture creation process • Venture capital and private equity • Business formation capital • Firm ownership • Public equity and IPO's • Market value and firm growth • Family-owned firms • Franchising • Management structure, governance and performance • Managerial characteristics and behavior of entrepreneurs • Corporate entrepreneurship • Strategic alliances and networks • High technology • Government programs and public • Technology-based new firms policy • High-tech clusters • Gender and ethnicity • Small business and economic • New business financing: growth Information for Librarians Foundations and Trends R in Entrepreneurship, 2009, Volume 5, 8 issues. ISSN paper version 1551-3114. ISSN online version 1551-3122. Also available as a combined paper and online subscription. Full text available at: http://dx.doi.org/10.1561/0300000019 Foundations and Trends R in Entrepreneurship Vol. 5, No. 2 (2009) 81{134 c 2009 C. Schade and K. Burmeister-Lamp DOI: 10.1561/0300000019 Experiments on Entrepreneurial Decision Making: A Different Lens Through Which to Look at Entrepreneurship Christian Schade1 and Katrin Burmeister-Lamp2 1 Humboldt-Universit¨atzu Berlin, Germany, [email protected] 2 Humboldt-Universit¨atzu Berlin, Germany, [email protected] Abstract In this paper, we propose that researchers might analyze key ques- tions in entrepreneurship as problems of decision making. We believe that this allows for new insights. Experiments are especially suited to empirically test hypotheses derived within such a framework. In this paper, we thus introduce the decision-making perspective as well as general characteristics of the experimental method. We also discuss existing experimental studies in entrepreneurship with respect to the use of a decision-making perspective and specifics of their experimental designs. Finally, we present \research cases" that demonstrate the shift in perspective that occurs when common questions in entrepreneurship are analyzed through the lens of decision making. We conclude that entrepreneurial decision making (EDM) bears the potential of a scien- tific paradigm. This paper is intended to stimulate theory development to establish such a paradigm and (experimental) research within the perspective of EDM. Full text available at: http://dx.doi.org/10.1561/0300000019 Contents 1 Introduction 1 2 Characterizing the EDM Lens: Theoretical Definition and Example 7 3 Experiments as a Research Method 11 4 Experiments 15 4.1 Experimental Designs 15 4.2 Quality Criteria 17 4.3 Experimental Subjects 18 4.4 Actual vs Hypothetical Decisions 20 5 Experimental Studies on Entrepreneurial Decision Making 23 5.1 Quasi-experimental Papers 23 5.2 Experimental Papers with a Within-Group Manipulation 26 5.3 Experimental Papers with a Between-Group Manipulation 29 5.4 Economic Experiments on Strategic Decisions 32 5.5 Intermediate Summary 36 ix Full text available at: http://dx.doi.org/10.1561/0300000019 6 \Scientific Cases": How EDM Might Change the Way We Look at Things 39 6.1 The Dispersed Knowledge View of the Entrepreneurial Firm 39 6.2 Entrepreneurial Cognition Research 41 6.3 Time Allocation of Entrepreneurs 42 7 EDM: Potentially a New Paradigm for Entrepreneurship Research? 45 References 49 Full text available at: http://dx.doi.org/10.1561/0300000019 1 Introduction A number of authors in entrepreneurship have used the term entrepreneurial decision making (EDM) to label their contributions (e.g., Busenitz and Barney (1997), L´evesque and MacCrimmon (1997), Forlani and Mullins (2000), Simon and Houghton (2002), Mullins and Forlani (2005), L´evesque and Schade (2005), Gustafsson (2006)). By the use of this term, each author may have had something slightly different in mind, but the general idea always traces back to decision theory: sometimes of the kind more rooted in economics and sometimes of the kind more rooted in psychology. Despite subtle differences, the joint perspective of economic and psychological approaches is to look at individuals' choices among alternatives as the object of investiga- tion (Schade and Koellinger, 2007). For a psychologist a decision is a rich phenomenon involving all kinds of cognitive, emotional, moti- vational, judgmental, perceptual, personal, and environmental factors (Kunreuther and Krantz, 2007).1 For a mainstream economist, factors 1 Common distinctions are made between normative decision theory and descriptive decision theory (the latter having much in common with cognitive psychology) as well as normative and descriptive game theory (the latter having much in common with social psychology). Whereas the two normative theories try to answer the question how one should behave 1 Full text available at: http://dx.doi.org/10.1561/0300000019 2 Introduction such as emotions and perceptions are typically not dealt with in detail (or not at all). Investigating entrepreneurial decision making might imply having a specific perspective on entrepreneurship. It implies the analysis of key questions in entrepreneurship research as decision making of entrepreneurs and of other individuals in entrepreneurial contexts. This is different from general research on decision making because it looks at specific individuals in a specific context. Entrepreneurs have been demonstrated already to decide differently than others (see, Busenitz and Barney (1997) and Burmeister and Schade (2007)), and there are contexts specific to
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