Entrepreneurship: Hot and Cold

18 November 2008 at 9:40 am 1 comment

| Peter Klein |

imagesThe current issue of Nature features “The Innovative Brain” by a team of Cambridge researchers, suggesting that that entrepreneurs (defined here as proprietors or founders) excel at “hot” decision making, an emotional, intuitive, under-pressure kind of reasoning familiar to neuroscientists.

Our groups of entrepreneurs and managers showed comparable performance on the Tower of London test of cold processes, with no differences in the number of solutions solved at the first attempt. On the Cambridge Gamble Task, both groups were able to make high-quality decisions, selecting the majority colour at least 95% of the time. The remaining 5% is likely to be accounted for by ‘gambler’s fallacy’ in which subjects try to second guess the computer by choosing the less likely colour. However, when subjects were introduced to the hot components of the task, differences were observed. We found that entrepreneurs behaved in a significantly riskier way, betting a greater percentage of their accrued points (63%) than their managerial counterparts (51%). Both groups adjusted their wagering according to the likelihood of success (dependent on the ratio of red-to-blue boxes). The only performance difference was the amount that was bet.

Interestingly, this risk-taking performance in the entrepreneurs was accompanied by elevated scores on personality impulsiveness measures and superior cognitive-flexibility performance. We conclude that entrepreneurs and managers do equally well when asked to perform cold decision-making tasks, but differences emerge in the context of risky or emotional decisions.

The researchers suggest that entrepreneurship education should perhaps give more attention to emotional, impulsive behavior rather than teach business planning and market research. (But, really, do 18-22 year olds need instruction in this area?) And here’s something to delight your local pharmacist: 

These cognitive processes are intimately linked to brain neurochemistry, particularly to the neurotransmitter dopamine. Using single-dose psychostimulants to manipulate dopamine levels, we have seen modulation of risky decision-making on this task. Therefore, it might be possible to enhance entrepreneurship pharmacologically.

The exercise is a bit scientistic for my tastes, but interesting nonetheless. (Thanks to Yiyong Yuan for the pointer.)

Entry filed under: - Klein -, Entrepreneurship. Tags: .

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1 Comment Add your own

  • 1. Innovation [2009-03-27] « PEG  |  26 March 2009 at 6:21 pm

    [...] Entrepreneurship: Hot and Cold [Organizations and Markets] The current issue of Nature features “The Innovative Brain” by a team of Cambridge researchers, suggesting that that entrepreneurs (defined here as proprietors or founders) excel at “hot” decision making, an emotional, intuitive, under-pressure kind of reasoning familiar to neuroscientists. [...]

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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