COGNITIVE MECHANISMS IN

ENTREPRENEURSHIP
Robert A. Baron
Rensselaer Polytechnic Institute
 PRESENTED BY
BS Mechanical Engineering 2011-15
Pakistan Institute of Engineering & Applied Sciences
Click icon to add picture
HUBERT H.
HUMPHREY
“ Much of our American
progress has been the
product of the individual
who had an idea; pursued
it; fashioned it;
tenaciously clung to it
against all odds; and then
produced it, sold it and
profited from it. ”
CONTENTS
• Introduction Muhammad Ali Shahzad

• Human Cognition Muhammad Arsalan

– Counterfactual Thinking Muhammad Awais
– Affect Infusion M. Safeer Azam
– Augmentation Muhammad Shoaib
– Planning Fallacy Naeem Ahmed
– Escalation of Commitment Shah Fahad Khan

• Implications Shahid Nawaz

INTRODUCTION
To the subject at hand
RESEARCH
• Entrepreneurs: subject of intense studies
– Initially: distinct personal traits
– Presently: no distinctive traits

• Cognitive perspective of research

• Inside view philosophy
COGNITIVE MECHANISMS
• Links between entrepreneurship & human
cognition
• Links termed as mechanisms
HUMAN COGNITION
The study of Entrepreneurship
COGNITIVE ASPECTS
• Limited information processing capability
• Minimized cognitive efforts
• Thinking pattern: not totally rational
COGNITIVE BIASES
• Information overload
• Uncertain situations
• Feelings-thought interplay
• High time pressures
• Physical fatigue
FACTORS LEADING TO COGNITIVE BIASES
Forcing Factors Cognitive Biases

• Information • Counterfactual
Overload Thinking
• High Uncertainty • Affect Infusion
• High Novelty • Self-serving Bias
• Strong Emotions • Planning Fallacy
• Time Pressure • Self-justification
• Fatigue
 COUNTERFACTUAL
THINKING
Effects of imagining what might have been
DESCRIPTION

The tendency to imagine what might have been in

a given situation
RELEVANCE
• “if only…” thoughts cause individuals to feel
dissatisfied with present outcomes
• Missed opportunities may lead to intense
regrets and magnification of lost potential
benefits
1ST HYPOTHESIS

Entrepreneurs are more likely to have “if only…”

thoughts than others and to experience regrets
over missed opportunities than are other people
2ND HYPOTHESIS

Entrepreneurs are more likely than others to

search for, identify and act upon perceived
opportunities
 AFFECT INFUSION
How and when feelings shape thought
DESCRIPTION

Affecting states produced by one source influence

judgments and decisions about other, unrelated
source (object, issues or persons)
RELEVANCE
• Affect infusion can lead to serious errors in
judgments and decisions, including ones
concerning business situations
3RD HYPOTHESIS

Entrepreneurs engage in careful, effortful thought

more often than other people do
4TH HYPOTHESIS

Entrepreneurs typically experience stronger

emotions than other people do
 AUGMENTATION
Attributional style and its role
DESCRIPTION

Tendency to attribute positive outcomes to internal

causes (their own talent/effort) and negative
outcomes to external causes (self-serving bias)
RELEVANCE
• Attributing positive outcomes to internal
causes can lead to over confidence in one’s
abilities
• Blaming others for negative outcomes can lead
to interpersonal friction
5TH HYPOTHESIS

Entrepreneurs may be more prone to the self-

serving bias than others
6TH HYPOTHESIS

Successful entrepreneurs are less susceptible to the

self-serving bias than are unsuccessful
entreprenuers
 PLANNING FALLACY
Thought of doing it sooner than possible
DESCRIPTION

The tendency to underestimate the time required

to complete various projects, or to overestimate the
accomplishments in a given period of time
KAHNEMAN AND LOVALLO (1994)
• Underestimate the risks and overestimate the
likelihood of success. Why ?
• Cognitive Blind Spot
• Glowing images of future
• Hallucination
• Over-Optimism
BUEHLER, GRIFFIN AND ROSS (1994)
• Research on college students
• Hardly half of the students had achieved the
deadlines they had predicted
• Common in normal human beings
• Your own example
WHY IS IT SO COMMON ?
• Past experiences not taken into account
• More “future orientation” in predictions
• Can’t co-relate the past experiences being
“similar” to the present situation
• Attribution of the delay in past to external
factors, “beyond their control”
RESEARCH
• Buehler, Griffin and Ross (1994)
• “Why did you not complete your task on time ?”
• 71% comments related to future plans
• Only less than 1% about past, even those
related that to external factors
RELEVANCE
• This tendency leads to unrealistic timetables
for the completion of various tasks
• Entrepreneurs more prone to this fallacy
• More impact in entrepreneurial situations
RELEVANCE
• HOLT (1992) stated that entrepreneurs are more
enthusiastic, and are focused on “vision for
growth”
• Their approach:
“Make it up as you go along”
• Tendency to isolate present from past is
increased
7TH HYPOTHESIS

Entrepreneurs are more prone to the planning

fallacy than other people; which contributes to
their tendency to make overly optimistic
predictions about future outcomes
 ESCALATION OF
COMMITMENT
Too much invested to quit too soon
DESCRIPTION

The tendency to continue investing time, effort or

money in a losing course of action because of an
initial commitment
RELEVANCE
• Escalation of commitment can lead to a
needless wastage of precious resources (not
affordable for new companies)
• Self-justification is an important factor in
escalation of commitment
8TH HYPOTHESIS

Entrepreneurs are more susceptible to tendency of

self-justification than are other people
 IMPLICATIONS
A perspective for entrepreneurship research
SUMMARY
• Entrepreneurs’ thinking is different and they
are more susceptible to cognitive biases
• Cognitive biases not due to personal traits but
due to the working environment
CONTD..
• Besides entrepreneurial study, cognitive study is
helpful in understanding memory, thinking, problem
solving, decision making and behavior of human beings.
• Given this fact, it seems reasonable to explore the value
of such a perspective in the study of entrepreneurship.
BENEFITS OF COGNITIVE STUDY
• It may assist entrepneurs in may ways especially in avoiding errors and
pitfalls.
• New conceptual tools that will contribute to development of
interventions for assisting practicing entrepreneurs.
• Formulating means to hold errors stemming from cognitive mechanisms.

• To develop empirical tests.

• To increase their decision making power.

• Accuracy of performance

43
GOALS OF COGNITIVE STUDY
Goals of such techniques are not to make entrepreneurs totally
resistant to cognitive sources of error and make them rational beings.
THE PURPOSE OF THIS PAPER IS
TO HAVE ENTERPNEURS WHO PAUSE AND REFLECT SUFFICIENTLY
TO INCREASE THE CHANCES THAT THEY AND THEIR SOCIETIES
HAD. THAT WILL MAKE THEM AND THEIR SOCITIES PROSPER.
 THANK YOU
You may ask any question