Entrepreneurship Theories

Attribution theory was developed by Austrian psychologist Fritz Heider in the 1950s. The fundamental assumption of attribution theory is that people are motivated to find causes for their own success and failure events as well as the behaviors of others. Individuals are more likely to attribute the causes of a successful event to themselves or their in-group, whereas they are more likely to attribute the causes of failure events to distal forces or out-group members. This is called a self serving bias. Similarly, when we see others fail, we are likely to attribute their failure to internal causes, such as laziness or incompetence rather than considering environmental conditions. This is called fundamental attribution error. Thus, when we see an entrepreneur fail in business, we assume that the failure is because they did something wrong. This may lead to a belief in wrong causes because the entrepreneur could have failed for reasons outside of his or her control. If attributi...

Elias Khalil (1997) at Monash University asks why is it that some entrepreneurs that have prior accomplishments continue to risk their capital again and again? Why don't they retire? One possibility is that these entrepreneurs are trying to be the best in the world or in a given territory or space. Another possibility is that they are striving just to be better than their former selves. Self-competition theory's main assumption is that individuals develop the desire to improve themselves, or rather, upon their former selves. Entrepreneurship can be viewed as behaviors that individuals use to better themselves. The theory also assumes that individuals keep track of their personal best and have the ability to compare themselves to their former bests. For example, one might try to obtain a return on investment that is double what a previous venture was able to provide. Or one might try to expand the scale of the venture to be larger than previous ventures, or to span more ...

What is the embeddedness theory of entrepreneurship? Karl Polanyi was an Austrian-Hungarian economic sociologist in the middle years of the twentieth century. He coined the term 'embeddedness' to mean the extent that economic activity is constrained by institutions that are non-economic. Non-economic institutions may include: 1) kinship or family 2) religious or cultural 3) power and politics Embeddedness can also be thought of as the nature, depth and extent of an individual’s ties into the environment (Jack and Anderson, 2002). Patterns of economic exchange become embedded in webs of social relations that over time leading to the development of trust and reciprocity (Uzzi, 1997). Embeddedness affects decisions about who to transact with including potential investors and customers of entrepreneurs' ventures. For instance, someone that graduates from Stanford may be more likely to get investment from someone in the Stanford venture capital network, but they may also...

What is the social judgement theory of entrepreneurship? The central concept in social judgement theory is legitimacy (Suchman, 1995), as the buyers and suppliers of any new venture must believe that the startup is legitimate in order to commit their scarce resources or risk capital. A startup must meet the regulatory, normative and cognitive institutional requirements of the markets where it competes.  A social judgment theory of entrepreneurship looks to the entrepreneurs stakeholders' social judgement about their ventures. These judgments are important because of the way that stakeholders make decisions to support a burgeoning venture or not to. Impression management? Perhaps and interesting critique of the social judgement theory as stated above is that is may be descriptive rather than prescriptive. For example, if the theory is considered prescriptive (i.e., normative), then an entrepreneur might thus manages the impressions that stakeholders build about them in o...

What is the biculturalism theory of entrepreneurship? Biculturalism refers to an individual characteristic that develops as a result of exposure to two cultures. The typical case is the immigrant who must learn the host country's local culture and in doing so adopts elements of a second culture. The Al-Shammari team examines individuals with bi-cultural skills and experiences: "those who are exposed to different cultures and environments will experience different types of experiences in their social interactions and thus will accumulate rich knowledge that is diverse" (page 7). They theorize that biculturalism provides advantages in the opportunity recognition, evaluation, selection and exploitation stages . They find that bicultural individuals have advantages in the earlier stages, but struggle with exploitation (due to institutional constraints), unless they are able to build networks in the host country. This is an interesting theory, though obviously lends its...