Uncertainty, ambiguity and entrepreneurship

Objective: Entrepreneurs are known to show a higher tolerance of uncertainty than other people (e.g., Sexton and Bowman, 1986; Begley & Boyd, 1987, Knight, 1921) and their ability to tolerate uncertainty may partly explain why some people become entrepreneurs. To test the hypothesis that entrepreneurs do not react as emotionally to increasing ambiguity as other people we compare the behavior and brain activation of entrepreneurs and workers who have managerial responsibilities.

Methods: Altogether 43 healthy male subjects participated in the fMRI study (20 entrepreneurs and 20 workers, three participants were excluded because they misunderstood the task). The experiment consisted of two separate sessions. In the first session, subjects filled out questionnaires on their risk preferences, confidence, optimism and socioeconomic and entrepreneurship / work background. In the fMRI session, subjects were presented a variety of “lottery tickets”. The task of the subjects was to state minimal prices at which they were willing to sell (WTS) each one of the lottery tickets (the Becker- DeGroot-Marschak -mechanism). There were 98 trials, half of them risky and half ambiguous. Subjects stated a minimum selling price for the lotteries by moving a cursor on the computer screen. Subjects were also told that at the end of the experiment two lotteries would be randomly selected and played for real money. We analyzed the fMRI data using the general linear model.

Results: On average, entrepreneurs priced the lotteries, risky and ambiguous, 13.7% above their expected value whereas managers’ average WTS fell below the expected value by 3.5 per cent. OLS panel regressions explaining the relative WTS by the entrepreneurial background and the lottery ambiguity level confirm that ambiguity significantly decreases relative WTS, low ambiguity 4.7 percent and highambiguity 20.5 percent of the expected value. Ambiguity affects the pricing decisions of the entrepreneurs significantly less than the pricing decisions of the managers even after controlling for individual differences in the risk attitude. In the fMRI data analysis, we found that risky and slightly ambiguous lotteries are associated with insula and medial prefrontal cortex activities when compared withhighly ambiguous lotteries. These brain areas have previously been related to emotional arousal and valuation, respectively.

Conclusions: Our data also suggests that increasing ambiguity does not increase affective processing in entrepreneurs but in contrast decreases it. We speculate that this may relate to higher ambiguity tolerance among entrepreneurs than other people.