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Enabling Entrepreneurial Choice

Author

Listed:
  • Ajay Agrawal

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada; National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • Joshua S. Gans

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada; National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • Scott Stern

    (MIT Sloan School, Cambridge, Massachusetts 02138; National Bureau of Economic Research, Cambridge, Massachusetts 02138)

Abstract

Entrepreneurs must choose between alternative strategies for bringing their idea to market. They face uncertainty regarding both the quality of their idea as well as the efficacy of each strategy. Although entrepreneurs can reduce this uncertainty by conducting tests, any single test conflates the signal of the efficacy of the particular strategy and the quality of the idea. Resolving this conflation requires exploring multiple strategies. Consequently, entrepreneurial choice is enhanced by finding ways to lower the cost of testing multiple strategies, receiving guidance as to the types of tests likely to reduce signal conflation, and optimally sequencing tests based on previous beliefs. This creates a role for judgment that may be provided by trusted third parties such as mentors and investors. We hypothesize that institutions that lower the cost of transmitting and aggregating judgment spur entrepreneurial performance.

Suggested Citation

  • Ajay Agrawal & Joshua S. Gans & Scott Stern, 2021. "Enabling Entrepreneurial Choice," Management Science, INFORMS, vol. 67(9), pages 5510-5524, September.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:9:p:5510-5524
    DOI: 10.1287/mnsc.2020.3920
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    More about this item

    Keywords

    startups; entrepreneurial strategy; experimentation; uncertainty; accelerators; judgment;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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