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Entrepreneurial Optimism in the Market for Technological Inventions

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  • Gary Dushnitsky

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

How do potentially optimistic entrepreneurs attract prospective investors? We investigate an entrepreneur's decision to pursue either disclosure ---where investors inspect the invention---or a contingent payment scheme (CPS) offer (e.g., salary deferral, royalty-based license)---where an invention's value is inferred from the entrepreneur's willingness to make her pay contingent on the invention's success. Using a parsimonious model, we highlight the role of optimism and demonstrate that it only affects CPS ex post. As a result, a novel trade-off unfolds ex ante: In choosing an action that maximizes the valuation of the invention, a moderately wealthy entrepreneur weighs optimism discount (affecting CPS) versus imitation discount (affecting disclosure). More broadly, the paper advances a view of entrepreneurs as optimists, thus departing from the prevailing approach, which characterizes entrepreneurs as opportunistic individuals who consciously pursue self-serving goals.

Suggested Citation

  • Gary Dushnitsky, 2010. "Entrepreneurial Optimism in the Market for Technological Inventions," Organization Science, INFORMS, vol. 21(1), pages 150-167, February.
    • Handle: RePEc:inm:ororsc:v:21:y:2010:i:1:p:150-167
    DOI: 10.1287/orsc.1090.0454
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