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Toward a theory of affordable loss

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  • Richard A. Martina

    (Amsterdam University of Applied Sciences)

Abstract

Although dozens of empirical studies have been published on effectuation as a whole, much work remains to be done on elaborating each principle in more depth. Based on an exploratory study of seven ventures from the Caribbean island of Curacao, this paper develops an elaborated process model of the affordable loss heuristic in effectuation. The model breaks affordable loss into two components—ability and willingness, and connects these to the concept of loss aversion from prospect theory. Furthermore, these components are encapsulated in a process involving identity, affect, and resourcefulness leading to the entry-stage entrepreneurial investment decision.

Suggested Citation

  • Richard A. Martina, 2020. "Toward a theory of affordable loss," Small Business Economics, Springer, vol. 54(3), pages 751-774, March.
    • Handle: RePEc:kap:sbusec:v:54:y:2020:i:3:d:10.1007_s11187-019-00151-y
    DOI: 10.1007/s11187-019-00151-y
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    More about this item

    Keywords

    Affordable loss; Effectuation; Entrepreneurial entry; Heuristic; Investment;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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