Chapter 2: Entrepreneurs Under Ambiguity: A Prospect Theory Perspective

This chapter focuses on entrepreneurial decision making under ambiguity. Our main contribution is to insist on the importance of ambiguity in entrepreneurship, as many entrepreneurial decisions are highly strategic, unique, and mostly taken in situations with limited and imprecise information. Uncertainty, quintessential in entrepreneurship, has inspired early theoretical works and psychological analysis of decision making in the entrepreneurship literature. Past contributions have mainly focused on risk and risk preferences as determinants of entry to entrepreneurship, but the message of this literature is hardly conclusive. In this chapter, we provide a state of the art overview on a recently emerging literature on ambiguity attitudes and entrepreneurship research. Many of such recent works are based on Expected Utility Theory and thus carry the same limitations of this theory. Our chapter emphasizes the advantage of experimental economics and the potential of Prospect Theory applications. We focus specifically on the weighting function aspect, and theorize on how it can contribute to further our understanding of entrepreneurial behavior. Prospect Theory represents a sophisticated tool that may disentangle subtle behavioral differences between entrepreneurial profiles and other decision makers.