Learning about the unknown: How fast do entrepreneurs adjust their beliefs?

By Simon C. Parker. 2006

240 citations recorded by the source corpus.

This paper seeks to measure the extent to which entrepreneurs adjust their beliefs in the light of new information, instead of relying on past experience to guide their decision making. We build a model in which entrepreneurs continually receive valuable but noisy market signals about the true but unobserved productivity of their effort, and use this information to update their expectations of unobserved productivity. The model is estimated using a sample of over 700 self-employed Britons interviewed in 1999 and 2000. It is found that on average, these individuals adjust their expectations of unobserved productivity in the light of new information by only 16%. This suggests that while entrepreneurs do exploit new information, they give much greater weight to their prior beliefs when forming their expectations. Also, there are no significant differences in terms of expectation formation between males and females, employers and non-employers, and experienced and less experienced entrepreneurs. However, younger entrepreneurs respond significantly more sensitively to new information than older entrepreneurs do, with adjustment rates of 21% compared with 14%, respectively. We go on to discuss some policy implications of these findings, and briefly discuss several features of entrepreneurship education programs that might help entrepreneurs improve this aspect of their business performance.

Subfields: Economics and Econometrics, Education, Management of Technology and Innovation

View Paper: https://www.semanticscholar.org/paper/6d6fccb5e40894d9c83b6e000ba82d774d9ec6c7

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In Economics and Econometrics

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In Management of Technology and Innovation

Citations in the corpus

Scaling Social Impact: Building Sustainable Social Ventures at the Base-of-the-Pyramid (2014, background): “Entrepreneurial adjustments reflect the extent to which entrepreneurs incorporate new information rather than relying on past experience when making decisions about their business ventures (Parker 2006; Harper 1996).”
Entrepreneurs’ Improvisational Behavior and Firm Performance: A Study of Dispositional and Environmental Moderators (2013, background): “…optimistic entrepre- neurs leading their firms in dynamic environments may fall prey to overconfidence (Klayman et al., 1999), give less credence to the new information they have encountered (Parker, 2006), and be strongly influenced by previously successful heuristics (Holcomb et al., 2009).”
Industry and Startup Experience on Entrepreneur Forecast Performance in New Firms (2014, unknown): “Through the experience of and reflection on past venturing activity, individuals can revise their beliefs regarding their ability to accurately evaluate new business opportunities (Shane 2000; Parker 2006), just as firms learn from their own misperceptions of new markets and revise their expectation”
Conceptual structure and perspectives on entrepreneurship education research: A bibliometric review (2019, background): “, start-ups) emerging from universities (Parker, 2006; Rasmussen & Sorheim, 2006). Nevertheless, at the end of the first period, Pittaway and Cope (2007a) conducted a systematic review of EE evidence and detected a need for the reorientation of EE research to include the demand for enterprise skills”
Heuristics, learning and the business angel investment decision-making process (2015, background): “A major gap in this literature on angel investing and decision-making is evidence on learning from experience, although there is some evidence on this for entrepreneurs (Parker 2006; Cassar and Craig 2009; Fern, Cardinal, and O’Neill 2012) and venture capital investors (De Clercq and Sapienza 2005).”
An investigation of hindsight bias in nascent venture activity (2009, background): “Nascent activity provides individuals with considerable opportunities for distilling and interpreting direct and indirect feedback, which enables the making sense of the dynamic entrepreneurship environment (Harrison & Leitch, 2005; Minniti & Bygrave, 2001; Parker, 2006).”
Practice Makes Perfect: Entrepreneurial-Experience Curves and Venture Performance (2014, unknown): “To apply experience curve theory to serial entrepreneurship, we first assume experienced entrepreneurs who start new ventures will not approach them as completely new endeavors (MacMillan, 1986; Parker, 2006).”
Do serial entrepreneurs run successively better-performing businesses? (2013, background): “…of the researcher, including whether entrepreneurs' performance tends to improve when they try venturing again, perhaps because they learn fromexperience (Minniti and Bygrave, 2001; Parker, 2006) or acquire valuable resources in the course of the venturing process (Davidsson and Honig, 2003).”
Did you save some cash for a rainy COVID-19 day? The crisis and SMEs (2020, background): “Of course, these predictions rely on the rational behaviour of small business owners a contention that has often been questioned in the entrepreneurship and small business finance literature in respect of the extent to which entrepreneurs fail to adjust their beliefs in the light of new information ”
Optimism, overconfidence and entrepreneurial activity (2008, unknown): “Empirical support for this is provided by Parker (2006)”