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Modern Theories of Entrepreneurial Behavior: A Comparison and Appraisal

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  • Anthony Endres
  • Christine Woods

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    Abstract

    This paper compares and appraises three principal, contemporary theories of entrepreneurial decision making – neoclassical, Austrian and behavioral. We employ theory appraisal criteria made available in Fritz Machlup’s (1967) celebrated article on alternative theories of the firm. The paper considers theories that treat sequences of behavior by which individual entrepreneurs reach decisions on two levels: the discovery of profit opportunities and their exploitation. We also consider how each theory characterizes the entrepreneur’s decision making process by contrast with the posited behavior of other economic agents. Austrian theory is suited to explaining novel, adventurous behavior at the discovery stage. The algorithm for opportunity exploitation in both the neoclassical and Austrian approaches is a single-repertoire, optimization rule. Neoclassical theory is situated in frictionless, atomistic Walrasian markets and emphasizes mathematical tractability. Austrian and behavioral theories conceive entrepreneurial acts taking place in market processes understood as complex institutional phenomena. There are strong theoretical complementarities between Austrian and behavioral approaches; both approaches value descriptive accuracy, though the behavioralists place more weight on operational tractability. Austrians and behavioralists share an interest in heuristics; they emphasize the role of prior micro-level knowledge at the discovery stage. Therefore more collaborative research in future between Austrians and behavioralists should prove fruitful. Copyright Springer 2006

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    File URL: http://hdl.handle.net/10.1007/s11187-004-5608-7
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    Bibliographic Info

    Article provided by Springer in its journal Small Business Economics.

    Volume (Year): 26 (2006)
    Issue (Month): 2 (03)
    Pages: 189-202

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    Handle: RePEc:kap:sbusec:v:26:y:2006:i:2:p:189-202

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    Web page: http://www.springerlink.com/link.asp?id=100338

    Related research

    Keywords: alertness; entrepreneurial behavior; heuristics; optimization; theory appraisal; M13; M21; D21; B41;

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    Cited by:
    1. Enrico Santarelli & Marco Vivarelli, 2007. "Entrepreneurship and the process of firms’ entry, survival and growth," Industrial and Corporate Change, Oxford University Press, vol. 16(3), pages 455-488, June.
    2. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2009. "Defending Gibrat’s Law as a long-run regularity," Small Business Economics, Springer, vol. 32(1), pages 31-44, January.
    3. Pei-Chou Lin & Deng-Shing Huang, 2006. "Technological Regimes and Firm Survival: Evidence across Sectors and over Time," IEAS Working Paper : academic research 06-A012, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    4. O'Connor, Allan, 2013. "A conceptual framework for entrepreneurship education policy: Meeting government and economic purposes," Journal of Business Venturing, Elsevier, vol. 28(4), pages 546-563.
    5. Sophie BOUTILLIER & Dimitri UZUNIDIS, 2011. "De l’incertitude des marchés au risque des affaires : la fonction de l’entrepreneur THE UNCERTAINTY OF THE MARKET AND THE RISK OF BUSINESS: THE ENTREPRENEURIAL FUNCTION," Working Papers 22, Réseau de Recherche sur l’Innovation. / Research Network on Innovation.
    6. Amarante, M & Ghossoub, M & Phelps, E, 2013. "Innovation, Entrepreneurship and Knightian Uncertainty," Working Papers 12241, Imperial College, London, Imperial College Business School.
    7. Defeuilley, Christophe, 2009. "Retail competition in electricity markets," Energy Policy, Elsevier, vol. 37(2), pages 377-386, February.
    8. Pei-Chou Lin & Deng-Shing Huang, 2008. "Technological Regimes and Firm Survival: Evidence Across Sectors and Over Time," Small Business Economics, Springer, vol. 30(2), pages 175-186, February.
    9. Vera Catarina Rocha, 2012. "The entrepreneur in economic theory: from an invisible man toward a new research field," FEP Working Papers 459, Universidade do Porto, Faculdade de Economia do Porto.

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