Abstract

Although cognitive theory has been adopted to explain entrepreneurial risk behavior, the complex interaction between personal and situational variables in stimulating or inhibiting entrepreneurship has yet to be explored. In this study, we focus on risk perception and the decision to start a new venture. We suggest that both depend on the framing of the new venture as a potential gain or a potential loss. “Gains and losses, of course, are defined relative to some neutral reference point.” (Kahneman & Tversky, 1979: 274) Accordingly, we hypothesize that the location of the reference point and the consequent framing of the new venture depend on two variables: (1) the current position of the individual, operationalized in terms of his/her employment situation (employed vs. unemployed); and (2) the manner in which the new venture is presented (emphasizing its positive aspects/chances of success vs. emphasizing its negative aspects/chances of failure). In addition, we suggest that the framing of the venture is also influenced by an individual’s risk propensity. We empirically test the effects of these variables (employment status, venture presentation, and risk propensity) on risk perception and the decision to start a new venture.

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