IDEAS home Printed from https://ideas.repec.org/a/kap/sbusec/v46y2016i3d10.1007_s11187-015-9694-5.html
   My bibliography  Save this article

Reference point formation and new venture creation

Author

Listed:
  • Andreas Hack

    (University of Bern
    Witten/Herdecke University)

  • Frauke Bieberstein

    (University of Bern)

  • Nils D. Kraiczy

    (University of Bern)

Abstract

In this study, we introduce reference point formation as an important antecedent of new venture creation. Based on considerations from prospect theory, we hypothesize that individuals who generally and consistently set more aspiring reference points have a higher intention to form a new venture. Testing our hypothesis with entrepreneurs and managers, results show that entrepreneurs indeed set more aspiring reference points. Therefore, they might find themselves more often in a perceived loss situation which in turn increases their risk-taking behavior, following the predictions of prospect theory. In testing entrepreneurial intention of business graduate students, results are shown to be robust. We discuss theoretical and managerial implications of the findings and develop avenues for future research.

Suggested Citation

  • Andreas Hack & Frauke Bieberstein & Nils D. Kraiczy, 2016. "Reference point formation and new venture creation," Small Business Economics, Springer, vol. 46(3), pages 447-465, March.
  • Handle: RePEc:kap:sbusec:v:46:y:2016:i:3:d:10.1007_s11187-015-9694-5
    DOI: 10.1007/s11187-015-9694-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11187-015-9694-5
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s11187-015-9694-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kimberly A. Eddleston & Franz Willi Kellermanns & Ravi Sarathy, 2008. "Resource Configuration in Family Firms: Linking Resources, Strategic Planning and Technological Opportunities to Performance," Journal of Management Studies, Wiley Blackwell, vol. 45(1), pages 26-50, January.
    2. Johannes Abeler & Armin Falk & Lorenz Goette & David Huffman, 2011. "Reference Points and Effort Provision," American Economic Review, American Economic Association, vol. 101(2), pages 470-492, April.
    3. Isabel Grilo & Roy Thurik, 2008. "Determinants of entrepreneurial engagement levels in Europe and the US," Industrial and Corporate Change, Oxford University Press, vol. 17(6), pages 1113-1145, December.
    4. Norris F. Krueger Jr. & Deborah V. Brazeal, 1994. "Entrepreneurial Potential and Potential Entrepreneurs," Entrepreneurship Theory and Practice, , vol. 18(3), pages 91-104, April.
    5. Forlani, David & Mullins, John W., 2000. "Perceived risks and choices in entrepreneurs' new venture decisions," Journal of Business Venturing, Elsevier, vol. 15(4), pages 305-322, July.
    6. Ardichvili, Alexander & Cardozo, Richard & Ray, Sourav, 2003. "A theory of entrepreneurial opportunity identification and development," Journal of Business Venturing, Elsevier, vol. 18(1), pages 105-123, January.
    7. Matthew S. Wood & David W. Williams, 2014. "Opportunity Evaluation as Rule-Based Decision Making," Journal of Management Studies, Wiley Blackwell, vol. 51(4), pages 573-602, June.
    8. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
    9. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1133-1165.
    10. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    11. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2011. "Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 522-550, June.
    12. Norris Krueger, 1993. "The Impact of Prior Entrepreneurial Exposure on Perceptions of New Venture Feasibility and Desirability," Entrepreneurship Theory and Practice, , vol. 18(1), pages 5-21, October.
    13. Björn Bartling & Klaus M. Schmidt, 2015. "Reference Points, Social Norms, And Fairness In Contract Renegotiations," Journal of the European Economic Association, European Economic Association, vol. 13(1), pages 98-129, February.
    14. Koellinger, Philipp & Minniti, Maria & Schade, Christian, 2007. ""I think I can, I think I can": Overconfidence and entrepreneurial behavior," Journal of Economic Psychology, Elsevier, vol. 28(4), pages 502-527, August.
    15. Arkes, Hal R. & Hirshleifer, David & Jiang, Danling & Lim, Sonya, 2008. "Reference point adaptation: Tests in the domain of security trading," Organizational Behavior and Human Decision Processes, Elsevier, vol. 105(1), pages 67-81, January.
    16. Palich, Leslie E. & Ray Bagby, D., 1995. "Using cognitive theory to explain entrepreneurial risk-taking: Challenging conventional wisdom," Journal of Business Venturing, Elsevier, vol. 10(6), pages 425-438, November.
    17. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
    18. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2012. "The Intergenerational Transmission of Risk and Trust Attitudes," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 645-677.
    19. Ulrich Schmidt & Horst Zank, 2012. "A genuine foundation for prospect theory," Journal of Risk and Uncertainty, Springer, vol. 45(2), pages 97-113, October.
    20. Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 29-36, May.
    21. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    22. Samuelson, William & Zeckhauser, Richard, 1988. "Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
    23. Botond Koszegi & Matthew Rabin, 2007. "Reference-Dependent Risk Attitudes," American Economic Review, American Economic Association, vol. 97(4), pages 1047-1073, September.
    24. Denis A. Grégoire & Andrew C. Corbett & Jeffery S. McMullen, 2011. "The Cognitive Perspective in Entrepreneurship: An Agenda for Future Research," Journal of Management Studies, Wiley Blackwell, vol. 48, pages 1443-1477, September.
    25. Townsend, David M. & Busenitz, Lowell W. & Arthurs, Jonathan D., 2010. "To start or not to start: Outcome and ability expectations in the decision to start a new venture," Journal of Business Venturing, Elsevier, vol. 25(2), pages 192-202, March.
    26. Paul C. Nutt, 1993. "The Formulation Processes and Tactics Used in Organizational Decision Making," Organization Science, INFORMS, vol. 4(2), pages 226-251, May.
    27. Thomas M. Zellweger & Franz W. Kellermanns & James J. Chrisman & Jess H. Chua, 2012. "Family Control and Family Firm Valuation by Family CEOs: The Importance of Intentions for Transgenerational Control," Organization Science, INFORMS, vol. 23(3), pages 851-868, June.
    28. Elke U. Weber & Richard A. Milliman, 1997. "Perceived Risk Attitudes: Relating Risk Perception to Risky Choice," Management Science, INFORMS, vol. 43(2), pages 123-144, February.
    29. Helga Fehr-Duda & Manuele Gennaro & Renate Schubert, 2006. "Gender, Financial Risk, and Probability Weights," Theory and Decision, Springer, vol. 60(2), pages 283-313, May.
    30. Gideon D. Markman & David B. Balkin & Robert A. Baron, 2002. "Inventors and New Venture Formation: the Effects of General Self–Efficacy and Regretful Thinking," Entrepreneurship Theory and Practice, , vol. 27(2), pages 149-165, April.
    31. Baron, Robert A., 2004. "The cognitive perspective: a valuable tool for answering entrepreneurship's basic "why" questions," Journal of Business Venturing, Elsevier, vol. 19(2), pages 221-239, March.
    32. Mitchell, J. Robert & Shepherd, Dean A., 2010. "To thine own self be true: Images of self, images of opportunity, and entrepreneurial action," Journal of Business Venturing, Elsevier, vol. 25(1), pages 138-154, January.
    33. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
    34. Axel Ockenfels & Dirk Sliwka & Peter Werner, 2015. "Bonus Payments and Reference Point Violations," Management Science, INFORMS, vol. 61(7), pages 1496-1513, July.
    35. Ernst Fehr & Oliver Hart & Christian Zehnder, 2015. "How Do Informal Agreements And Revision Shape Contractual Reference Points?," Journal of the European Economic Association, European Economic Association, vol. 13(1), pages 1-28, February.
    36. Edmund R. Thompson, 2009. "Individual Entrepreneurial Intent: Construct Clarification and Development of an Internationally Reliable Metric," Entrepreneurship Theory and Practice, , vol. 33(3), pages 669-694, May.
    37. Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 769-797, August.
    38. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    39. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
    40. Iyigun, Murat F & Owen, Ann L, 1999. "Entrepreneurs, Professionals, and Growth," Journal of Economic Growth, Springer, vol. 4(2), pages 213-232, June.
    41. Wood, Matthew S. & McKelvie, Alexander & Haynie, J. Michael, 2014. "Making it personal: Opportunity individuation and the shaping of opportunity beliefs," Journal of Business Venturing, Elsevier, vol. 29(2), pages 252-272.
    42. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
    43. Andranik Tumasjan & Isabell Welpe & Matthias Spörrle, 2013. "Easy Now, Desirable Later: The Moderating Role of Temporal Distance in Opportunity Evaluation and Exploitation," Entrepreneurship Theory and Practice, , vol. 37(4), pages 859-888, July.
    44. Vishal K. Gupta & Daniel B. Turban & S. Arzu Wasti & Arijit Sikdar, 2009. "The Role of Gender Stereotypes in Perceptions of Entrepreneurs and Intentions to Become an Entrepreneur," Entrepreneurship Theory and Practice, , vol. 33(2), pages 397-417, March.
    45. James G. March & Zur Shapira, 1987. "Managerial Perspectives on Risk and Risk Taking," Management Science, INFORMS, vol. 33(11), pages 1404-1418, November.
    46. Andrew C. Corbett, 2005. "Experiential Learning within the Process of Opportunity Identification and Exploitation," Entrepreneurship Theory and Practice, , vol. 29(4), pages 473-491, July.
    47. J. Michael Haynie & Dean A. Shepherd & Jeffery S. McMullen, 2009. "An Opportunity for Me? The Role of Resources in Opportunity Evaluation Decisions," Journal of Management Studies, Wiley Blackwell, vol. 46(3), pages 337-361, May.
    48. Forbes, Daniel P., 2005. "Are some entrepreneurs more overconfident than others?," Journal of Business Venturing, Elsevier, vol. 20(5), pages 623-640, September.
    49. KruegerJR, Norris F. & Reilly, Michael D. & Carsrud, Alan L., 2000. "Competing models of entrepreneurial intentions," Journal of Business Venturing, Elsevier, vol. 15(5-6), pages 411-432.
    50. Hean Tat Keh & Maw Der Foo & Boon Chong Lim, 2002. "Opportunity Evaluation under Risky Conditions: The Cognitive Processes of Entrepreneurs," Entrepreneurship Theory and Practice, , vol. 27(2), pages 125-148, April.
    51. Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September.
    52. Manel Baucells & Martin Weber & Frank Welfens, 2011. "Reference-Point Formation and Updating," Management Science, INFORMS, vol. 57(3), pages 506-519, March.
    53. Souitaris, Vangelis & Zerbinati, Stefania & Al-Laham, Andreas, 2007. "Do entrepreneurship programmes raise entrepreneurial intention of science and engineering students? The effect of learning, inspiration and resources," Journal of Business Venturing, Elsevier, vol. 22(4), pages 566-591, July.
    54. Busenitz, Lowell W. & Barney, Jay B., 1997. "Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making," Journal of Business Venturing, Elsevier, vol. 12(1), pages 9-30, January.
    55. Baron, Robert A., 1998. "Cognitive mechanisms in entrepreneurship: why and when enterpreneurs think differently than other people," Journal of Business Venturing, Elsevier, vol. 13(4), pages 275-294, July.
    56. StewartJr., Wayne H. & Watson, Warren E. & Carland, Joann C. & Carland, James W., 1999. "A proclivity for entrepreneurship: A comparison of entrepreneurs, small business owners, and corporate managers," Journal of Business Venturing, Elsevier, vol. 14(2), pages 189-214, March.
    57. Isabell M. Welpe & Matthias Spörrle & Dietmar Grichnik & Theresa Michl & David B. Audretsch, 2012. "Emotions and Opportunities: The Interplay of Opportunity Evaluation, Fear, Joy, and Anger as Antecedent of Entrepreneurial Exploitation," Entrepreneurship Theory and Practice, , vol. 36(1), pages 69-96, January.
    58. Simon, Mark & Houghton, Susan M. & Aquino, Karl, 2000. "Cognitive biases, risk perception, and venture formation: How individuals decide to start companies," Journal of Business Venturing, Elsevier, vol. 15(2), pages 113-134, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rodney C. Shrader & Mark Simon & Steven Stanton, 2021. "Financial forecasting and risky decisions: an experimental study grounded in Prospect theory," International Entrepreneurship and Management Journal, Springer, vol. 17(4), pages 1827-1841, December.
    2. Zhang, nan & Qin, Botao, 2020. "Reference point adaptation and air quality – Experimental evidence with anti-PM 2.5 facemasks from China," MPRA Paper 102935, University Library of Munich, Germany.
    3. Jaeyeob Jeong & Myeonggil Choi, 2017. "The Expected Job Satisfaction Affecting Entrepreneurial Intention as Career Choice in the Cultural and Artistic Industry," Sustainability, MDPI, vol. 9(10), pages 1-16, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dan K. Hsu & Johan Wiklund & Richard D. Cotton, 2017. "Success, Failure, and Entrepreneurial Reentry: An Experimental Assessment of the Veracity of Self–Efficacy and Prospect Theory," Entrepreneurship Theory and Practice, , vol. 41(1), pages 19-47, January.
    2. Oliver Thomas, 2018. "Two decades of cognitive bias research in entrepreneurship: What do we know and where do we go from here?," Management Review Quarterly, Springer, vol. 68(2), pages 107-143, April.
    3. Jeffery S. McMullen & Katrina M. Brownell & Joel Adams, 2021. "What Makes an Entrepreneurship Study Entrepreneurial? Toward A Unified Theory of Entrepreneurial Agency," Entrepreneurship Theory and Practice, , vol. 45(5), pages 1197-1238, September.
    4. Andranik Tumasjan & Isabell Welpe & Matthias Spörrle, 2013. "Easy Now, Desirable Later: The Moderating Role of Temporal Distance in Opportunity Evaluation and Exploitation," Entrepreneurship Theory and Practice, , vol. 37(4), pages 859-888, July.
    5. Alex Markle & George Wu & Rebecca White & Aaron Sackett, 2018. "Goals as reference points in marathon running: A novel test of reference dependence," Journal of Risk and Uncertainty, Springer, vol. 56(1), pages 19-50, February.
    6. Hernan E. Riquelme & Abdulaziz Alqallaf, 2020. "Anticipated emotions and their effects on risk and opportunity evaluations," Journal of International Entrepreneurship, Springer, vol. 18(3), pages 312-335, September.
    7. Werner Bönte & Vivien D. Procher & Diemo Urbig, 2016. "Biology and Selection into Entrepreneurship—The Relevance of Prenatal Testosterone Exposure," Entrepreneurship Theory and Practice, , vol. 40(5), pages 1121-1148, September.
    8. Kollmann, Tobias & Stöckmann, Christoph & Kensbock, Julia M., 2017. "Fear of failure as a mediator of the relationship between obstacles and nascent entrepreneurial activity—An experimental approach," Journal of Business Venturing, Elsevier, vol. 32(3), pages 280-301.
    9. Stephen X. Zhang & Javier Cueto, 2017. "The Study of Bias in Entrepreneurship," Entrepreneurship Theory and Practice, , vol. 41(3), pages 419-454, May.
    10. Koellinger, Philipp & Minniti, Maria & Schade, Christian, 2007. ""I think I can, I think I can": Overconfidence and entrepreneurial behavior," Journal of Economic Psychology, Elsevier, vol. 28(4), pages 502-527, August.
    11. Dietmar Grichnik & Alexander Smeja & Isabell Welpe, 2010. "The Importance of Being Emotional: How do Emotions Affect Entrepreneurial Opportunity Evaluation and Exploitation?," Post-Print hal-00856603, HAL.
    12. Scheaf, David J. & Loignon, Andrew C. & Webb, Justin W. & Heggestad, Eric D. & Wood, Matthew S., 2020. "Measuring opportunity evaluation: Conceptual synthesis and scale development," Journal of Business Venturing, Elsevier, vol. 35(2).
    13. Maria Claudia Angel Ferrero & Véronique Bessière, 2016. "From Lab to Venture: Cognitive Factors Influencing Researchers' Decision to Start a Venture," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 24(02), pages 101-131, June.
    14. Aurélien Baillon & Han Bleichrodt & Vitalie Spinu, 2020. "Searching for the Reference Point," Management Science, INFORMS, vol. 66(1), pages 93-112, January.
    15. Najoua Dali & Sana Harbi, 2016. "The Effect of Risk Perception and Cognitive Biases on the Evaluation of Opportunity in Family and Non-Family Entrepreneurs: The Case of Tunisian Entrepreneurs," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 24(03), pages 281-312, September.
    16. Yan Li & David Ahlstrom, 2020. "Risk-taking in entrepreneurial decision-making: A dynamic model of venture decision," Asia Pacific Journal of Management, Springer, vol. 37(3), pages 899-933, September.
    17. Emre Şahin Dölarslan & Akin Koçak & Alper Özer, 2017. "“Bats Are Blind?” Cognitive Biases In Risk Perception Of Entrepreneurs," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 22(03), pages 1-13, September.
    18. Grichnik, Dietmar & Smeja, Alexander & Welpe, Isabell, 2010. "The importance of being emotional: How do emotions affect entrepreneurial opportunity evaluation and exploitation?," Journal of Economic Behavior & Organization, Elsevier, vol. 76(1), pages 15-29, October.
    19. Dubard Barbosa, Saulo & Fayolle, Alain & Smith, Brett R., 2019. "Biased and overconfident, unbiased but going for it: How framing and anchoring affect the decision to start a new venture," Journal of Business Venturing, Elsevier, vol. 34(3), pages 528-557.
    20. Saulo Dubard Barbosa & Alain Fayolle & Brett Smith, 2019. "Biased and overconfident, unbiased but going for it: How framing and anchoring affect the decision to start a new venture," Post-Print hal-01988083, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:46:y:2016:i:3:d:10.1007_s11187-015-9694-5. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.