Therational choice perspective is also known as utilitarianism, in whichself-interested individuals will act on their own preferences with the aim tomaximize utility. By adopting an objective approach, it uses mathematical modelsto predict behaviour. It suggests that individuals will start a business eitherdue to greater preference for entrepreneurship, or because the expected utilityof choosing entrepreneurship rates highest amongst all other occupationalchoices, given the relative level of incentives such as the provision of pecuniaryand non-pecuniary benefits (Morton and Podolny 2002). Essentially, it can be arguedthat individuals will need to have special abilities such as critical thinkingskills and analytical skills not only to be able to undertake complicated econometricanalysis for the correct calculation of expected utility, but also to empower individuals to have the cognitive power inorder to make rational choices. Cognitivebiases on perceived ability mayarise from optimism and are affected by social norms, which will directlyaffect individuals’ rational decision onoccupational choices (Fraser and Greene 2006). Given thatindividuals’ behaviour is affected by outcome as well as the expectation ofoutcome, special abilities are required to minimise systematic bias to ensure that individuals are not reliant ona set of heuristic principles indecision-making (Kahneman et al 1982). Another way of looking at the topic is to consider whether entrepreneurslearn over time. If they do, then no special abilities are required in thefirst place, since it can be developed with time.
Frankish et al. (2008)monitored the performance of 6,000 new business customers at Barclays. Assumingmore information will be gained as experience accumulates, individuals willhave better ability in decision-making progressively over time. However, nodifferences in performance were found as time past, implying that experiencedoes not affect performance and entrepreneurs do not learn over time.
Therefore, special abilities are necessary in the first place for successful entrepreneurship.Moreover, North et al. (1991) propose that only firms that are flexible andadaptive will survive in the long run. This means special ability such aseffective leadership and managerial capability are required in order to alloweffective changes and necessary adjustments be conducted throughout layers ofmanagement in a timely manner. However, Jovanovic (1982)’s noisy selection offers an opposing view,where good firms are seen to be able to survive while bad firms will fail overtime. In fact, the utility function rather than one’s ability dictates thedecision-making process. Assuming entrepreneurial ability is stable andunchanging, no special ability is required as it is a passive learning processwhere individuals will find out if entrepreneurship is suitable for them sooneror later.
In line with this, Levinthal (1997) suggests that entrepreneurs willadapt to the uncertain market environment via a trial and error process, inwhich many of the best moves are triggered by ‘accidents’ rather than the useof special abilities. Likewise, the performance threshold, rather thanperformance itself, determines the survival of firms (Gimeno et al. 1997).Therefore, poor performing firms are able to survive as they are staying in alower performance threshold, and special ability is not a prerequisite requirementfor the survival of a business. However, other factors such as the role of family and capital will alsoaffect the original decision to enter entrepreneurship (Blanchflower andOswald1998). In particular, capital constraint is seen as a determent to entrepreneurship, even if one possesses thenecessary skills and talents (Evans and Jovanovic 1989).
Despite higher entrepreneurialability will lead to higher marginal products of capital at any level of capital,where special ability makes it easier for runninga business, situational factors such as liquidity position should alsobe considered in the utility model. The Psychological perspective Similar to the rational choice approach, thepsychological approach adopts a scientific methodology to evaluates subjectivematters in an objective way. It suggests that entrepreneurial behaviour isexplained by individual’s intrinsic nature, such as one’s innate ability and subjectiveperceptions (Naffziger el al. 1994).
Specifically, behaviour is affected byone’s judgment on his perceived entrepreneurial ability, rather than what thereality is (Krueger 1995). Unlike the rational choice approach, who looks atindividual’s choice in one given situation, the psychological perspectivefocuses on personal intentions in any situations. In addition, the trait theoryis widely used to show the relationship between entrepreneurialcharacteristics and business’ performance.
To illustrate, twenty-six popular traitshave been identified by Chell et al. (1991) and particularly, the big threecharacteristics, namely ‘the need for achievement’, ‘locus of control’ and’risk-taking propensity’ are seen as the fundamental driving characteristics tobusiness success. Entrepreneurs tend to have a high need for achievement and a compulsivedesire to strive for excellence. It is seen as necessary for entrepreneurship,despite no innate ability is required since it can be developed during bothchildhood and adulthood. Entrepreneurs also have a higher propensity and acceptanceto risk (Brockhaus 1980).
Accompanied with a proactive attitude, all of these characteristics increase their likelihood of discovering and exploiting opportunities (Khilstromand Laffont 1979). Indeed, ‘alertness toopportunity’ is a crucial differentiating factor to business success since opportunitiesalways arise from market inefficiencies but they are captured only by the ‘alerted’ones (Kirzner 1997). Undoubtedly, this is also affected by the access to information,and different learning styles will affect the mind-set of entrepreneurs andtheir ability to learn over time. Nevertheless, a positive correlation between entrepreneurialpersonality and business performance is established, suggesting complex psychological attributes are required for entrepreneurship. However, entrepreneurship isa dynamic concept while trait theory is a static concept. This suggests that traittheory itself might not be a good predictor of individual success. In light of this,the cognitive model with notion of attitude is introduced as an alternativeapproach to address entrepreneurial behaviour. The locus of control could be a possibleexplanation.
People with strong internal locus of control believe that they cancontrol the outcome while people with strong external locus of control believethat outcome will be dictated by luck and other random factors. Taken together,the former tends to be an entrepreneur who undertake self-motivated behaviour (Rotter, 1966), whilethe later will avoid entrepreneurial activity. Similarly, entrepreneurial intention and subsequently businessperformance will be affected by entrepreneurial self-efficacy (ESE). Individualswith high ESE are confident about their own ability, they make greater commitmentto entrepreneurial activities and are more likely to deliver excellentperformances. Conversely, people with low ESE such as women and ethicsminorities may be equipped with entrepreneurial abilities but entrepreneurialactivity is avoided due to a low ESE affected by social norms and structures (Chenet al 1998). As such, the perception of special ability rather than special abilityitself determines the choice to entrepreneurship. Although this may be true, situationistsbelieve that one’s behaviour is more dependent upon the situation rather than individualcharacteristics (Mischel 1968).
Specifically, entrepreneurial characteristicsare restricted within the business’ environment, which will consequently affectone’s personality (Carsrud and Brannback 2015). Also, the greater the experience theindividual had, the greater the ability to identify opportunities (Cardozo andRay 2003). Considering this, the opposing view argues that entrepreneurialalertness is determined by the access of knowledge, rather than specialabilities. The Biography Perspective The biography approach is an individualistic and purposive approach whereentrepreneurship is considered as an emotional journey in which different participantswill attach different meanings to their behaviours. While both the rational choiceapproach and the biography approach focus on individual preferences, the formeradopts an objective statistical methodology, the latter adopts a subjectivequalitative approach to view individual intentions that determine the development of entrepreneurial attitudes. Thisis one of the biggest criticisms as different interpretations between researcherswill result in great variances, making it difficult to reach an intuitiveconclusion. However, this is also one of the biggest strengths of the approachsince it considers the market uncertainty as well as differences in social structures, allowingresearchers to portrait a fuller picture of entrepreneurial behaviour via narrativemeans of ‘storytelling’ that would otherwise remain uncovered if conventionalapproaches were adopted.
Bhide (2000) evaluated a hundredof the fastest growing start-ups in the US. Common qualities such as high levelof resilience, tolerance for ambiguity and adaptability to new circumstancesare identified amongst successful entrepreneurs. It is seen that their uniqueabilities distinguish them from unsuccessful entrepreneurs, allow them to resolveproblems such as those arise from failure to secure resources. Bhide’s findingpresents an affirmative argument in which only by having the ‘right stuff inplace, rather than luck, will allow one to transform a start-up into along-lived organisation. However, Hashemi and Hashemi (2002) arguethat everyone can learn, gather knowledge and improve during the course of thebusiness.
Without a revolutionary idea, what guided them through the ups anddowns and eventually achieve success in business are the strong dedication,faith and extreme passion, rather than special abilities. These attitudes allowone to pay extra attention and constantly upgrade himself, despite learningfrom experience also depends on the quality of relationships with outsiders (Gibb1997). Personal opinion To avoid over-simplification, all three perspectives can beintegrated in order to bringin different but complementary viewpoints. In practice, the complexity ofcontemporary workplaces might suggest that rationality in decision-making mightnot be possible. Considering both sides of the arguments in each perspective, Ibelieve having special abilities make it easier to achieve entrepreneurialsuccess. However, it is not only a question of who can do it, but also thequestion of who has enough motivation to do it. In line with the Coffee Republic case andthe psychological perspective, I believe individual’s expectation of personal pursuitstrongly affects entrepreneurial behaviour.
Only those with sufficientmotivation and passion will be able to be persistent in overcoming any ongoingchallenges at the same time as improving one’s abilities. For example, Casson (1982) arguesthat the ability to form informed ‘judgment’ distinguishes successfulentrepreneurs from the rest, and such ability reflects an innate ability butmore frequently it is deriving from learning from experience. Despite traitsnot unchanging over time (Hampson 1988), the question of whether the individualcan actually learn and improve from experiences is another highly contestedtopic. Moreover, the development of entrepreneurial spirit is affected by manyother factors such as financial support and education (Burke et al 2002).
Forthis reason, entrepreneurship reflects the complex interactions betweenindividuals and the context, as seen in the women’s movements and reform ofminorities’ civil rights that have caused a dramatic increase in the number ofentrepreneurs during the 1980s. In other words, favourable social conditionshave encouraged the initial move to enter entrepreneurship, and businesssuccess might not be the result of ‘having the right stuff’ but rather ‘beingin the right place at the right time’. Also, industry and geographical differences means that not every entrepreneurneeds the same set of skills. In thisessay, the rational choice approach is useful in understanding the rationalebehind individuals’ initial choice of entrepreneurship. Using trait theory andcognitive models, we can examine the chance of business survival and success togetherwith the qualitative side under the biography perspective. It is concluded thatspecial ability isrequired to some extent for entrepreneurship, and we should also considerissues such as whether abilities can be developed over time, the level of motivation,and othersocial factors in order to draw a more comprehensive conclusion.