Role of emotions in the entrepreneur's opportunity recognition process

Sundararajan, Malavika
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Peters, Lois S.
Corbett, Andrew C.
Watt, James H.
Paulson, A. S.
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Management and technology
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This electronic version is a licensed copy owned by Rensselaer Polytechnic Institute, Troy, NY. Copyright of original work retained by author.
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Creation of ventures only follows a successful recognition of an opportunity and decision to develop the opportunity. The Opportunity Recognition (OR) process is said to be based on the entrepreneur’s cognitive processes comprised of stages like perception, evaluation and elaboration. While cognitive factors explain why and what causes the OR process, no study has explained exactly how this process takes place. From the psychology literature we understand that all cognitive mechanisms are interlinked with emotional pathways and that emotions act as feedback mechanisms in cognitive processes. This study thus puts forth a model to show how emotions provide the missing link in cognitive studies that may help explain how the OR process takes place. In doing so along with the key cognitive factors like prior knowledge, prior experience and entrepreneurial self-efficacy four distinct types of emotional responses are studied. The emotional responses are physiological responses, secondary appraisal-based emotions, secondarily induced associated emotions and background emotions. The manner in which the above cognitive and emotional factors impact individuals’ abilities to recognize opportunities every time they encounter a scenario are measured. This study took a three-fold approach in order to investigate the role of emotions in the OR process. Interview case studies were conducted to ensure the design of the theoretical model. A scenario-based experimental study was carried out in a lab setting with 90 participants who were primarily university students. The lab study measured blood-pressure and heart rate and obtained information concerning all other variables in the model using a web-based survey. In addition to the lab study the same web-based survey was sent out to entrepreneurs (N=34) to test the reliability of the model. Using structural equation modeling, the models and their paths were tested. The model was found to fit the data very well across both the experiment and survey studies. It was found that secondary positive emotions play a very significant role in individuals’ decision to develop an opportunity. The relation between positive emotions and decision to develop was significant in the presence and absence of all other cognitive factors and background emotions. Another significant finding was that decreased systolic blood pressure was related to increased ability to recognize better quality opportunities. The experiments also demonstrated a relationship between activated background emotions and secondary emotions that impact decisions made by entrepreneurs. A distinct difference between entrepreneurs and student participants was noticed. There was a greater influence of prior knowledge and experience and no influence of entrepreneurial self-efficacy on secondary emotions among entrepreneurs. However among student participants only higher entrepreneurial self-efficacy had a significant impact on the individuals’ secondary emotions while prior knowledge and experience had no impact. A revised model of the opportunity recognition process is put forth along with the implications and conclusion of the findings of this study.
May 2008
School of Management
Lally School of Management and Technology
Rensselaer Polytechnic Institute, Troy, NY
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