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Enabling Entrepreneurial Choice

Author

Listed:
  • Ajay K. Agrawal
  • Joshua S. Gans
  • Scott Stern

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. While 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 prior beliefs. This creates a role for judgment that may be provided by third parties such as mentors and investors. We hypothesize that institutions that lower the cost of transmitting and aggregating judgment spur entrepreneurial success.

Suggested Citation

  • Ajay K. Agrawal & Joshua S. Gans & Scott Stern, 2020. "Enabling Entrepreneurial Choice," NBER Working Papers 27379, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27379
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    References listed on IDEAS

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    More about this item

    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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