Cognitive Theory Gp2

7/31/2019 Cognitive Theory Gp2

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BY GROUP 2 ANAND

ANUDEEP AJ IT

SREE HARISH

SAGAR

Using Cognitive Theory To Explain

Entrepreneurial Risk-takingLesllie E Palich & D. Ray Bagby


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Introduction

SCHUMPTER 1973KIRZNER 1973KNIGHT 1921

CANTILLION 1755GOVERNMENTSMIXED OPINIONS

COGNITIVE PROCESSESDECISION DIMENSIONSSPECIFIC HYPOTHESES


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Categorization Theory

Acknowledges the power of cognitive heuristics toexplain human behavior & decision making.Categorization proves useful by allowing for efficient

storage of information. Assessments are likely to be similarly skewed ordistorted.


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Entrepreneurs and Cognitive Process

Entrepreneurs are risk takers.They are more optimistic in their assessments of business situations.

Categorization by entrepreneurs and nonentrepreneurs.


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Decision Dimensions

SWOT analysis

Provide a summary of business situations

Measure for Optimism/Pessimism.

Strength Weakness

Opportunities Threats


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Specific Hypotheses

There will be no difference between in risk propensity between entrepreneurs and non entrepreneurs

H1 When presented with identical situations,

entrepreneurs will categorize them as having moreStrengths versus Weakness than non entrepreneursH2 When presented with identical situations,

entrepreneurs will categorize them as having moreopportunities versus threats than non entrepreneurs.

H3 When presented with identical situations,

entrepreneurs will categorize them as having morepotential for gain versus loss than non entrepreneursH4


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Methods

Subjects

Random sample :548

members.Four pagequestionnaire withcover letter .

Non response.148 membersresponded out of 548(27%).

Scenario development

Stimuli consisted

of 3 scenario

Technological

developments

Changes incompetitive

environment

Trendstowards

internationalization


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Measures

2 fromfaculty of agraduate business

school

1 frompractitioner

highly familiar withentrepreneurs and firms

Panel of 3entrepreneu

rshipexperts


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Cont..

Panel members assign subject in 2 groups accordingto responses to 8 survey questions that capturedinformation e.g.

Founding new ventures .New innovationsRapid growthHigh profitability.Estimations of revenue growth.


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Risk Propensity

Variables Mean S.D 1 2 3 4

Group 1.62 .49 - - - -

Risk Propensity

5.84 .92 -0.04

Strengths/ weakness

1.09 1.29 -0.25 0.14

Opportunities/threat

1.45 1.71 -0.20 0.11 0.23

Improve/deteriorates 1.07 1.31 -0.38 0.10 0.68 .46


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Results of ANOVA comparing Risk Propensity

Group N Mean Risk Propensity

Entrepreneurs 35 5.89

Nonentrepreneurs 57 5.81

F 0.16 NS


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Results of Multivariate and Univariate Analysis

Variables N MeanScores

WilkesLambda

F R square

Multivariate Model 0.86 4.79

Strengths/weakness 5.75 0.06

Entrepreneurs 35 1.48Nonentrepreneurs 55 0.84

Opportunities/Threats 3.80 0.04


Nonentrepreneurs 55 1.18Improve/Deteriorate 14.58 0.14


Nonentrepreneurs 55 0.67


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Discussion

Entrepreneur is described as the risk propensity orrisk taking ability of an unique individual. According to cognitive theory entrepreneur actually do not take risk rather they tend to categorize the business situations by their schema accessibility (rose-colored glasses).Two condition necessary to support theory of entrepreneurial perception

Doesn't report greater risk propensity than their non-entrepreneur counterpartsMore optimistic cognitive structure


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Implications

Lord and Maher 1990 stated that people do use simplified cognitiveprocess when they form perception.Categorization often lead to serious distortions in processing of information. This leads to two potential biases

Excessive optimism (by entrepreneur)Pessimism (by non-entrepreneur)

When trained to identify critical dimensions and important attributesin a business decision, both entrepreneurs and non-entrepreneurs may be alike

Finally systematic differences in cognitive process helps to distinguishhigh growth entrepreneurs from those who are interested in lifestyleenterprises. Thus a small business owners can identify opportunities


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Limitations

Heuristics such as availability, representativeness were not considered.Response rate was less than ideal

Sample is limited to certain geographical areaThe human perceptions are prone to distortion dueto cognitive limitation of the observers. Hence it isimpossible to get the SWOT for future performance.Hence researchers cannot know certain quality of anindividual


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Future research

Cognition affects entrepreneurship. Experience play a vital role in decision making but still questions like,how an entrepreneur adjust his decision frames?, Dosuccess and failure impact cognitive process?Remains un answered paving way for future research


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Thank You

Documents

Cognitive Theory Gp2