Firm Survival as a Function of Individual and Local Uncertainties: An Application of Shackle's Potential Surprise Function

The link between the management of uncertainty and knowledge creation is the core element behind firm survival, as these two factors are critical for true innovation. This article links the survival of highly innovative firms to their knowledge creation and application in the context of two types of uncertainty management: (i) the individual firm's ability to handle uncertainty; (ii) the aggregate local “neuroticism” in facing uncertainty that characterizes the geographic location where the firm operates. The study is inspired by Audretsch and Dohse's model of firm growth and geographic location. We augment this model with George Shackle's potential surprise function for handling individual uncertainty. Additionally, we extend the model by also considering the psychological profile of localities, in particular their level of neuroticism according to the so-called Big Five taxonomy. Using data for the highly innovative Cambridge Region (UK) for the period 2010–2014, we find that, on individual level, the daring companies survive less frequently, but appear to live longer if they manage to survive. Survival also appears to be influenced by locational characteristics related to the local level of neuroticism. In particular, being located in a place with higher neuroticism is associated with lower survival rates.