Enabling Entrepreneurial Choice

31 Pages Posted: 2 Jun 2020 Last revised: 20 Nov 2020

See all articles by Joshua S. Gans

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Scott Stern

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Ajay K. Agrawal

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 19, 2020

Abstract

Entrepreneurs must choose between alternative strategies for bringing their idea to market. They face uncertainty regarding both the quality of their idea as well as the efficacy of each strategy. While entrepreneurs can reduce this uncertainty by conducting tests, any single test conflates the signal of the efficacy of the particular strategy and the quality of the idea. Resolving this conflation requires exploring multiple strategies. Consequently, entrepreneurial choice is enhanced by finding ways to lower the cost of testing multiple strategies, receiving guidance as to the types of tests likely to reduce signal conflation, and optimally sequencing tests based on prior beliefs. This creates a role for judgment that may be provided by trusted third parties such as mentors and investors. We hypothesize that institutions that lower the cost of transmitting and aggregating judgment spur entrepreneurial performance.

Keywords: startups, entrepreneurial strategy, experimentation, uncertainty, accelerators, judgment.

JEL Classification: D83, O31

Suggested Citation

Gans, Joshua S. and Stern, Scott and Agrawal, Ajay K., Enabling Entrepreneurial Choice (November 19, 2020). Available at SSRN: https://ssrn.com/abstract=3592509 or http://dx.doi.org/10.2139/ssrn.3592509

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

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Scott Stern

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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National Bureau of Economic Research (NBER)

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Ajay K. Agrawal

University of Toronto - Rotman School of Management ( email )

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Canada

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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