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Affordable Loss: Behavioral Economic Aspects of the Plunge Decision

2009

Saras Sarasvathy Stuart Read Nick Dew Rob Wiltbank

Affordable loss involves decision makers estimating what they might be able to put at risk and determining what they are willing to lose in order to follow a course of action. Using the entrepreneur’s new venture plunge decision, this article combines insights from behavioral economics to develop a detailed analysis of the affordable loss heuristic. Specifi cally, we develop propositions to explain how individuals: (1) decide what they can afford to lose; and (2) what they are willing to lose in order to plunge into entrepreneurship. The article also discusses the implications of affordable loss for the economics of strategic entrepreneurship.

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