Entrepreneurial cognition and the use of heuristics

Exploring the growth mindset of entrepreneurs

The field of study known as entrepreneurial cognition borrows theory and language from the field of cognitive psychology to understand how entrepreneurs think, and is central to our research. In general, the aim of cognition research is to understand what differentiates entrepreneurs from others, such as managers, in business. Whilst there is already some interesting evidence on this, we would like to go further and understand how entrepreneurs with high growth businesses are different from entrepreneurs in businesses that do not grow or that grow much more slowly.

In short, entrepreneurial cognition research aims to understand the development of entrepreneurs’ ‘cognitions’ or mental maps: these are basically internal sets of instructions about what to do or how to behave in a particular situation. Evidence from observational research shows that entrepreneurs do behave differently to managers and one theory suggests that this is because entrepreneurs think (or have learnt to think) differently. One of the main ideas underpinning this is that, when it comes to business, entrepreneurs are less likely than other people to use ‘rational’ methods of decision-making. For example, instead of carrying out lengthy cost benefit analysis of a situation, entrepreneurs more frequently use what academics call ‘heuristic logic’ or ‘heuristics’, which in simple terms are mental shortcuts, such as rule of thumb. Lowell Busenitz and Jay Barney, amongst others, have written about how entrepreneurs use heuristic logic in strategic decision-making to cut through complexity and make decisions quickly.

As an example, cognition research provides an interesting perspective on risk-taking which has often been identified as an important entrepreneurial behaviour even though research shows that entrepreneurs often don’t think of themselves as being risk-takers. It’s something that has perplexed researchers for some time and a number of cognition studies cast some light on the issue. They suggest that heuristic strategies create the illusion of control and a tendency to over-generalise with the result that entrepreneurs perceive risks to be lower than non-entrepreneurs do. Another possibility is that as entrepreneurs gain experience, their ability to manage risk improves and the likelihood of negative consequences occurring is actually lower for these individuals than they would be for others.

What existing research cannot tell us, and what our research aims to uncover, is whether the mental maps of entrepreneurs with high growth businesses vary from those of other entrepreneurs. What is well accepted, however, is that although cognition research sees entrepreneurs as thinking differently to other people, the way entrepreneurs think can change (‘soft wiring’); a theme that we’ll be returning to in our fourth post on whether people become experts at growth. Our next blog post will consider the role of ambition in growing a business.

Read the first blog entry for this research here

Dr Tamara McNeill - Research Associate, Centre for Enterprise

 

Further Blog Posts:

Post 1 – Why are MMU researchers exploring the growth mind-set of entrepreneurs

Post 2 – Entrepreneurial cognition and the use of heuristics

Post 3 – Growth intention and the role of ambition in entrepreneurship

Post 4 – Does entrepreneurial expertise exist?

Post 5 – Could there be a gene for business growth?