A Lack of Insight: Do Venture Capitalists Really Understand Their Own Decision Process?
Posted: 17 Nov 2009
Date Written: 1998
Analyzes how well venture capitalists (VCs) examine their own decision making processes. Four hypotheses are presented which suggest that VCs do not perform accurate self-examinations regarding their decision criteria, more information decreases their introspection accuracy, using optimal information factors increases the VC's introspection accuracy about decision processes, and VCs are consistent in applying their decision policies. Data were gathered using an experiment which captures the real-time decision making processes of fifty-one practicing VCs from the Colorado Front Range and the Silicon Valley in California. Findings indicate that VC understanding of their decision policies is not perfect, but the strong rank order correlation between the actual and stated decision policies suggests relatively good insight. Also supported are the hypotheses that more information greatly diminishes VC understanding of decision policies, VCs using optimal cues have better understanding of their decision policies, and that VCs are consistent in applying their decision policies even if they do not consciously understand the policy. (SFL)
Keywords: Investment decisions, Decision making, Venture capitalists, Firm survival, Investment criteria, Information utilization, Decision models, Information assessment, Venture capital firms, Investment policies
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