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Risky Decisions and the Family Firm Bias: An Experimental Study Based on Prospect Theory

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  • Maximilian Lude
  • Reinhard Prügl

Abstract

In this article, we look at how a family firm signal affects decision making of nonprofessional investors. Grounded in prospect theory and supported by empirical evidence from a choice-based experimental study ( N  = 418) backed by a qualitative study, we demonstrate a behavioral bias induced by the family firm signal. This family firm bias shifts nonprofessional investors’ preferences toward the high-risk alternative in a choice situation. Accordingly, processing the family firm information seems to moderate risk aversion as risk avoidance is decreased in the gain domain, while risk seeking is reinforced in the loss domain due to trust and longevity associations tied to the family firm signal.

Suggested Citation

  • Maximilian Lude & Reinhard Prügl, 2019. "Risky Decisions and the Family Firm Bias: An Experimental Study Based on Prospect Theory," Entrepreneurship Theory and Practice, , vol. 43(2), pages 386-408, March.
    • Handle: RePEc:sae:entthe:v:43:y:2019:i:2:p:386-408
    DOI: 10.1177/1042258718796078
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