The influence of risk perception, misconception, illusion of control and self-efficacy on the decision to exploit a venture opportunity

Abstract

This paper reports on decision-making cognitions just before and during the start-up decision within the entrepreneurial process. It uses empirical results based on responses collected through questionnaires from entrepreneurs, managers, employees and students as respondents. The importance of entrepreneurial cognitions is reported, and the possible implications during the decision-making process are explored. Using a case design required respondents to read a case and decide whether they would start the venture or not. First viability thoughts about the venture happened as early as reading 12% into the case, and 81% of the respondents had their first thought about the viability of the venture before reading 36% of the case. As all the financial information was attached at the end, viability was judged to a large extent without reading financial information. This confirms that respondents appear to have used heuristics (shortcuts) and biases to make the start-up decision. Correlation and inter-correlation strengths and directions between business risk perception, misconceptions, self-efficacy and illusion of control bias with the start-up decision and viability thoughts were established. Highly significant differences between those that supported the start-up and those that did not were observed for business risk perception and misconceptions, and significant differences for illusion of control bias, but none for self-efficacy. The paper recognises the importance of cognitions in entrepreneurial thinking and the tendency to make judgements without complete information. This may lead to decisions that can contribute to failure, or may alternatively be the reason why some entrepreneurs are successful.