Does a Theory-of-Value Add Value? Evidence from a Randomized Control Trial with Tanzanian Entrepreneurs

Abstract

Entrepreneurs making decisions under uncertainty are encouraged to evaluate their initial ideas through hypothesis testing, but entrepreneurial approaches vary in their emphasis on ex-ante theory development prior to collecting evidence. In this paper, we examine whether and how entrepreneurs benefit from adopting an evidence-based approach or a theory-and-evidence-based approach to decision-making. We conducted a field experiment with Tanzanian agribusiness entrepreneurs by randomly assigning entrepreneurs to two different training conditions. We find that entrepreneurs in the theory-and-evidence-based condition have higher economic performance during the observation period following the intervention. We conjecture this result stems from differences in the types of changes enacted: entrepreneurs in the theory-and-evidence-based training make more coordinated changes that encompass both core and operational elements of their business models.

Keywords: entrepreneurship, experimentation, scientific approach, strategy formation, theory-based view, developing contexts

JEL Classification: L26, C93