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Aggressive Pivots and Entrepreneurial Skill

Author

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  • Xuelin Li
  • Martin Szydlowski

Abstract

We study pivots as signaling devices in a dynamic experimentation model. An entrepreneur receives funding from an investor and has private information about a project, which requires costly experimentation to succeed. The entrepreneur has a real option to pivot, i.e., to abandon the project and to start a new one. Investors learn about the project from the arrival of exogenous information and from the entrepreneur's pivoting decisions. We characterize signaling equilibria in which high-skill entrepreneurs pivot early. Such early pivots are associated with higher likelihood of success and with more favorable funding terms following the pivot.

Suggested Citation

  • Xuelin Li & Martin Szydlowski, 2025. "Aggressive Pivots and Entrepreneurial Skill," American Economic Journal: Microeconomics, American Economic Association, vol. 17(2), pages 28-65, May.
    • Handle: RePEc:aea:aejmic:v:17:y:2025:i:2:p:28-65
    DOI: 10.1257/mic.20240075
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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