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Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking

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... Necessity-driven entrepreneurs are more likely to be located in lower income regions, so they are likely to have limited access to human capital (Hessel et al., 2008). Since they do not have a high level of education, it is important for them to be able to recognize that they possess the knowledge and skills necessary to be an entrepreneur 2 (Peña et al., 2014), it is crucial that they perceive their own abilities as key to the success of their business (Kahneman & Lovallo, 1994). This is because the level of education does not necessarily imply a significant impact on the preferences to become an entrepreneur (Grilo & Irigoyen, 2006), it is relatively more important to have certain non-cognitive skills, such as social skill (Baron & Markman, 2003) or creativity (Weitzel et al., 2010). ...
... Additionally, one of the most important features of entrepreneurship is entrepreneurs' recognition that they possess the knowledge and skills needed to start a business (CAP) (Peña et al., 2014). This is because it increases their self-confidence and likeli- hood of success (Kahneman & Lovallo, 1994), which in turn reduces risk aversion, which is especially acute among necessity-driven entrepeneurs. Accordingly, the implementation of public policies focused on improving education could be a good measure to promote NTEA in periods of crisis (Table 5. Model 3). ...
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... The construction of knowledge must therefore be regarded as an intensely social process, with its own interpersonal and group dynamics." Talking and agreement about uncertainty, through a social process, does not necessarily remove it and may increase it or reduce it (Kahneman and Lovallo 2000).In this article, I will define uncertainty as follows: ...
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... Contrary to decision avoidance where a choice is delayed, ignored, or deferred, (outlined by Anderson, 2003) decision inertia is defined as "the redundant cognitive deliberation of choice for no positive gain" (see . Thus, what separates decision inertia (a negative outcome) from more general indecision or avoidance (which can be positive when it prevents hasty or reckless decisions; Janis & Mann, 1977;Kahneman & Lovallo, 1994) is the fact that, despite the individual's motivation to act, they struggle to commit to a choice (either cognitively, or behaviorally). A central facet of RD, is that the decision-maker fails to decide within an "ideal" timeframe. ...
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... In research [15] the extensive review of the reasons of overexpenditures of large-scale projects, the authors of the given research allocate 17 such reasons. In our opinion, two reasons deserve special attention: un-certainty and use of inadequate methods of decision-making [11,12,16]. ...
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This chapter examines in-depth the behavior of necessity- and opportunity-driven entrepreneurship. First, it considers their relevance to total entrepreneurial activity. The chapter determines which social and economic factors affect the two types of entrepreneurship, as well as their relative importance for a sample of 32 previously selected countries during a period of expansion (2001-2008) and of crisis and recovery (2009-2016). The analyzed factors include monetary and fiscal policy instruments (economic factors) and representative variables of governance and human capital (social ones). The findings show that both necessity- and opportunity-driven entrepreneurship largely explain the behavior of total entrepreneurial activity. They moreover show that the explanatory factors of both kinds of entrepreneurship differ depending on the business cycle phase considered. These findings will be key to proposing efficient economic policy measures to promote entrepreneurial activity and, thus, economic growth in economies around the world.
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