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Theory-Driven Entrepreneurial Search

Author

Listed:
  • Chavda, Ankur

    (HEC Paris)

  • Gans, Joshua S.

    (University of Toronto)

  • Stern, Scott

    (Massachusetts Institute of Technology)

Abstract

How should theory-based entrepreneurs search for strategies to implement their ideas? The theory-based view of strategy posits that decision-makers hold theories about their environment premised on beliefs that should be actively tested. This causal framework, which underlies the theory-based view, also has implications for entrepreneurial search: the process by which entrepreneurs uncover strategies to implement their ideas. In this paper, we develop a Bayesian model where entrepreneurs update their beliefs as they conduct entrepreneurial search. We find several optimal behaviors for theory-based entrepreneurs such as reverting to a previous strategy after finding a relatively poor strategy and continuing to search after finding a relatively good strategy, which are missing when entrepreneurs lack such a theory-based approach. As these predictions align with examples of successful entrepreneurs, our findings both provide a method to empirically identify skilled entrepreneurs and demonstrate the usefulness of applying the theory-based view to entrepreneurial behavior more generally.

Suggested Citation

  • Chavda, Ankur & Gans, Joshua S. & Stern, Scott, 2024. "Theory-Driven Entrepreneurial Search," HEC Research Papers Series 1505, HEC Paris.
    • Handle: RePEc:ebg:heccah:1505
    DOI: 10.2139/ssrn.4706860
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    Keywords

    entrepreneurial search; theory-based view; stopping rule; Knightian uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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