Prediction- and Control-Based Strategies in Entrepreneurship: The Role of Information

2016

Graciela Kuechle BEATRICE BOULU-RESHEF SEAN D. CARR

Research summary Prediction- and control-based strategies are the two main hypotheses of how entrepreneurs deal with uncertainty in theories of entrepreneurship. Prediction-based strategies focus on estimating unknowns via sampling methods, whereas control-based strategies focus on shaping unknowns via proactive behavior. These strategies may lead to different propensities to undertake uncertain prospects, as they differ in terms of cognition and involvement. In an experimental test, we study the conditions under which prediction- and control-based strategies lead subjects to accept bets in ambiguous environments. Individuals who use control methods to mitigate uncertainty are more likely to accept the bet after a favorable outcome compared to those who use predictive methods. These results revert in the presence of unfavorable outcomes. We discuss the implications for entrepreneurship theory and practice. Managerial summary Entrepreneurs often adopt prediction- and control-based strategies in order to reduce uncertainty. Prediction-based strategies focus on gathering information to estimate future outcomes, whereas control-based strategies concentrate on taking actions to create a more favorable environment for the venture. Results from an experimental test show that these strategies can affect behavior differently. In particular, when the decision maker receives favorable information, control-based strategies are more likely to lead to the acceptance of an uncertain prospect than prediction-based strategies. This effect reverts when the decision maker receives unfavorable information. Our findings are valuable for entrepreneurs, investors, and policy makers. Understanding the distinctive impact of strategy on behavior may help entrepreneurs and investors calibrate the potential of a venture, thereby avoiding the misallocation of valuable resources. Copyright © 2016 Strategic Management Society.

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