Entrepreneurship: The
Engine of Growth,
Volumes 1-3
Edited by
Maria Minniti
PRAEGER
Entrepreneurship
ENTREPRENEURSHIP
The Engine of Growth
Volume 1
PEOPLE
Edited by Maria Minniti
PRAEGER PERSPECTIVES
Library of Congress Cataloging-in-Publication Data
Entrepreneurship : the engine of growth / edited by Maria Minniti ... [et al.].
p.
cm.
Includes bibliographical references and index.
ISBN 0-275-98986-0 (set: alk. paper)—ISBN 0-275-98987-9 (vol 1: alk. paper)—
ISBN 0-275-98988-7 (vol 2: alk. paper)—ISBN 0-275-98989-5 (vol 3: alk. paper)
1. Entrepreneurship.
I. Minniti, Maria.
HB615.E636 2007
338'.04—dc22
2006028313
British Library Cataloguing in Publication Data is available.
Copyright # 2007 by Maria Minniti
All rights reserved. No portion of this book may be
reproduced, by any process or technique, without the
express written consent of the publisher.
Library of Congress Catalog Card Number: 2006028313
ISBN: 0-275-98986-0 (set)
0-275-98987-9 (vol. 1)
0-275-98988-7 (vol. 2)
0-275-98989-5 (vol. 3)
First published in 2007
Praeger Publishers, 88 Post Road West, Westport, CT 06881
An imprint of Greenwood Publishing Group, Inc.
www.praeger.com
Printed in the United States of America
The paper used in this book complies with the
Permanent Paper Standard issued by the National
Information Standards Organization (Z39.48-1984).
10 9 8 7 6 5 4 3 2 1
Contents
Preface
vii
Introduction
ix
Maria Minniti
1. Entrepreneurial Behavior as a Human Universal
1
Roger Koppl
2. Cognition and Affect: Invaluable Tools for Answering
‘‘Why,’’ ‘‘How,’’ and What’’ Questions about Entrepreneurs
and the Entrepreneurial Process
21
Robert A. Baron
3. Heuristics, Biases, and the Behavior of Entrepreneurs
41
Christian Schade and Philipp Koellinger
4. The Role of Risk in Entrepreneurial Behavior
65
Julie Ann Elston and David B. Audretsch
5. Entrepreneurship as an Occupational Choice
81
Simon C. Parker
6. The Influence of Social Capital on Entrepreneurial Behavior
101
Christian Simoni and Sandrine Labory
7. Entrepreneurial Behavior and Institutions
119
Peter J. Boettke and Christopher J. Coyne
8. Entrepreneurs in the Global Economy
135
Kent Jones
9.
Immigration, Ethnicity, and Entrepreneurial Behavior
157
Jonathan Levie and David Smallbone
10. Perspectives on Women Entrepreneurs: Past Findings
and New Directions
181
Patricia G. Greene, Candida G. Brush,
and Elizabeth J. Gatewood
Index
205
About the Set Editors
211
About the Contributors
215
vi
CONTENTS
Preface
The editors of this three-volume set are pleased to present readers with insight
into the field of entrepreneurship by some of the leading scholars around the
world. Babson College, the home institution for all the editors, has been a leader
in entrepreneurship education for over thirty years and is recognized by many
leading publications as the top school for teaching entrepreneurship at both the
MBA and undergraduate levels (thirteen years running by U.S. News and World
Report). Since 1999, Babson College, in conjunction with the London Business
School, has led the Global Entrepreneurship Monitor (GEM) research project.
GEM assesses the state of entrepreneurship activity across more than forty coun-
tries around the world (comprising two-thirds of the world’s population and over
90 percent of the world GDP), and has shown that entrepreneurship can be found
in all economies and that almost 9 percent of the adult population is actively
attempting to launch a new venture at any given time.1 While the percentages
vary by country, GEM illustrates the importance of entrepreneurship and pro-
vides context as we try to better understand the entrepreneurial phenomenon.
We have compiled three volumes focusing on entrepreneurship from three
different perspectives: people, process, and place. Volume 1, edited by Maria
Minniti, looks at the intersection of people and entrepreneurship. Taking a broad
view of entrepreneurship as a form of human action, chapters in this volume
identify the current state of the art in academic research with respect to cognitive,
economic, social, and institutional factors that influence peoples’ behavior with
respect to entrepreneurship. Why do people start new businesses? How do peo-
ple make entrepreneurial decisions? What is the role played by the social and
economic environment on individuals’ decisions about entrepreneurship? Do
institutions matter? Do some groups of people such as immigrants and women
face particular issues when deciding to start a business? The volume addresses
these and other questions. Each chapter provides an extensive bibliography and
suggestions for further research.
Volume 2, edited by Andrew Zacharakis and Stephen Spinelli, examines the
entrepreneurial process. The book proceeds through the lifecycle of a new venture
start-up. Chapter authors tackle several key steps in the process, ranging from idea,
to opportunity, team building, resource acquisition, managing growth, and en-
tering global markets. These chapters identify the current state of the art in aca-
demic research, suggest directions for future research, and draw implications for
practicing entrepreneurs. What is clear from this volume is that we have learned a
tremendous amount about the entrepreneurial process, especially over the last
fifteen years. This deep insight leads us to ask more questions and suggest new
research to answer these questions. This learning is also applied in the classroom
and shared in this book so that students and entrepreneurs can assess best practices.
Volume 3, edited by Mark Rice and Tim Habbershon, examines place. In this
volume and in the literature, place refers to a wide and diverse range of contextual
factors that influence the entrepreneur and the entrepreneurial process. We re-
present these contextual factors as a series of concentric circles ranging from en-
vironmental and global forces, to national and regional policies, industries and
infrastructures, to cultural communities, families, and organizational forms. Chap-
ters in this volume address entrepreneurship in the context of the corporation,
family, and franchise. We provide insights on ethnicity and entrepreneurship in the
U.S. Hispanic, Slovenian, and German context. We look at the impact of public
policy and entrepreneurship support systems at the country and community level,
and from an economic and social perspective. We also examine the technology en-
vironment and financing support structures for entrepreneurship as context issues.
By placing this array of contextual factors into an ecosystem perspective, we show
how entrepreneurship is a complex input–output process in which people, process,
and place are constantly interacting to generate the entrepreneurial economy.
It is our hope that the chapters spur the reader’s interest in entrepreneurship,
that the academic who is new to entrepreneurship will see an opportunity to enter
this field, and that those who are already studying this phenomenon will see new
questions that need investigation. We hope that practitioners and students will
glean best practices as they work in entrepreneurial ventures and that the prescrip-
tions within these chapters will help them succeed. We also think that these volumes
can help policymakers get a firmer grasp on entrepreneurship and the potential it
has to spur economic growth within a country, state/province, and town. En-
trepreneurship operates in an ecosystem that is reliant upon all the audiences of
these volumes. As we gain better understanding of the ecosystem, we all benefit.
NOTE
1. M. Minniti, W. Bygrave, and E. Autio, Global Entrepreneurship Monitor: 2005
Executive Report (Boston, MA: Babson College and London Business School, 2006).
viii
PREFACE
Introduction
Maria Minniti
Entrepreneurship is often identified with the creation of new business ventures
or with self-employed individuals. These activities are indeed expressions of
entrepreneurial behavior. Entrepreneurship, however, is a much broader phe-
nomenon. Whether starting a new business, solving a problem, or deciding what
route to take driving home, individuals are always on the alert to the possibility
of changes that may improve their life, even if in very small ways. All individuals
are potential innovators seeking new and better ways to do things. Thus, en-
trepreneurship is a characteristic of human behavior consisting in the identifi-
cation of new end-means frameworks.1 It is also a timeless human universal
present in all places and cultures. People are at the core of the entrepreneurial
phenomenon, and without a clear understanding of their behavior our object of
inquiry disappears. ‘‘The entrepreneur,’’ William Baumol wrote, ‘‘is one of the
most intriguing and at the same time most elusive characters in the cast that
constitutes the subject of economic analysis.’’2 This first volume of the trilogy on
entrepreneurship is about people. Who are entrepreneurs? What motivates en-
trepreneurial behavior? Why are some individuals more entrepreneurial than
others?
Social scientists look at the world from a variety of disciplinary perspectives,
and social science consists of the application of scientific methods to the study of
the human aspects of the world and, specifically, of individual relationships in
and to society. Entrepreneurship is a complex and multilayered phenomenon.
Entrepreneurial actions produce personal and collective changes which, because
of the interdependence among individuals, ultimately, change the world. Thus,
the identification, description, and theoretical explanation of what entrepreneurs
do, and how they do it, can only be rooted in a comprehensive social science
approach. Any other attempt to understand entrepreneurship would have to set
boundaries and, because if its very nature, entrepreneurship does not lend itself
to be bound. Any delimitation of what counts as entrepreneurial behavior would
cause artificial exclusions whether of topic or of disciplinary approaches and
would be, therefore, scientifically unsound.
The goal of this volume is to show the breadth and richness of the social
science approach to the study of entrepreneurial behavior and to illustrate how
such a wealth of knowledge can be fully understood and exploited only if en-
trepreneurship is properly characterized as a universal aspect of human action. By
presenting a variety of disciplinary approaches and a wide range of areas of in-
quiry, the volume allows the reader to appreciate how they all overlap and com-
plement each other in meaningful and interesting ways.
Although designed primarily for an academic audience, the volume is of in-
terest and accessible to anyone interested in understanding entrepreneurial be-
havior or in exploring in detail how entrepreneurship and its implications
influence individuals’ lives and economic growth and development. Although
each chapter is self-contained and deals with a different area of inquiry, all chap-
ters are logically linked. Also, chapters are based on different disciplinary per-
spectives. Thus, readers will gain insights on how related topics are treated from
very different disciplinary backgrounds. Authors were invited to contribute to the
volume because of their intellectual leadership in their chosen fields, and I am
grateful to each and all of them for participating in this project. Finally, the
sequence and selection of chapters allows readers to gain a holistic view of the
issues and literature related to entrepreneurial behavior. Although the list of
topics does not pretend to be comprehensive, the volume provides a rich and up-
to-date overview of the most interesting developments in the field.
Since entrepreneurship is an attribute of human action, all individuals are
entrepreneurs. Yet, some are more entrepreneurial than others, and the en-
trepreneurial behavior of some groups may appear to differ systematically from
that of others. Why? Human decisions are molded by cognitive processes and
emotional states that influence how individuals learn and what they attribute
importance to. These processes lead to the decisions that determine human ac-
tions. Such decisions are sometimes rational and sometimes biased. In the case of
entrepreneurship, many of them also involve employment choices and risky si-
tuations. Moreover, decisions are influenced and become meaningful within
specific social contexts. Institutions are a particularly important part of this
context since they determine individuals’ incentives and, as a result, what in-
dividuals will do. Explaining these observations helps us know why individuals
behave entrepreneurially albeit not all in the same way or degree.
In Chapter 1, Roger Koppl addresses the question of who the entrepreneur is,
and what constitutes entrepreneurial behavior. This is indeed a central issue for
this volume, one to which, in the literature, different answers have been proposed,
but no general agreement exists.3 Building upon the tradition of Austrian social
science, Koppl’s argument is that progress is possible only if entrepreneurship is
acknowledged as a human universal and entrepreneurs as agents of change.
x
INTRODUCTION
To say that entrepreneurs are agents of change is equivalent to saying that they
are innovators. To innovate, however, one must be alert to new opportunities for
innovative actions. Building upon Kirzner’s classic works, Koppl presents a
comprehensive review of works in entrepreneurship theory and introduces the
term post-Kirznerian theory to identify works rooted in the Austrian tradition and
in which time and uncertainty are central elements.4 Post-Kirznerian theory
replaces homo economicus with homo sapiens and gives us the theoretical foun-
dations for a unified view of entrepreneurial behavior showing that the field is not
defined by its object of inquiry, but by its point of view.5
Koppl contributes to this volume by providing a unifying approach to the study
of entrepreneurial behavior and by correcting several mistakes about Austrian
theory often found in the entrepreneurship literature. In addition to explaining
the importance of a social science approach to the study of entrepreneurship,
Koppl points out the importance that psychological factors play on entrepre-
neurial behavior and prepares the readers to fully appreciate Chapter 2.
In Chapter 2, Robert Baron focuses on the cognitive processes involved in
the acquisition, transformation, and use of information, and on their inter-
dependence with the emotions and moods that individuals experience. Significant
evidence exists indicating that cognition and affect are interrelated in complex
ways, so that the moods or emotions that individuals experience influence many
aspects of cognition, and cognition, in turn, influences feelings.
A large body of evidence in cognitive science suggests that pattern recognition
is a basic aspect of our efforts to understand the world around us.6 The initial
section of Baron’s chapter focuses on the idea that opportunity recognition, a key
aspect of entrepreneurial behavior, is essentially a form of pattern recognition
and argues for the usefulness of applying prototype models to its analysis. Pro-
totype models are cognitive frameworks representing idealized representations of
the most typical member of a category. Applying them to the study of oppor-
tunity recognition, Baron argues, may help us understand in a unique frame-
work the links between active search, alertness, and prior knowledge, the three
factors that have been found to play important roles in entrepreneurial behavior.
The second part of Baron’s chapter focuses on affect, that is, the moods or
emotions individuals experience daily. Affective reactions strongly influence
perceptions of the external world and judgments based on such perceptions.
Baron argues that the important links between affect and cognition have sig-
nificant implications for entrepreneurial behavior and our understanding of it,
since they influence our perceptions of the external world and associated risks,
susceptibility to various forms of cognitive biases, and even creativity. Baron’s
analysis leads directly to Chapter 3 in which Christian Schade and Philipp
Koellinger discuss in detail the importance of heuristic thinking and perceptual
biases on entrepreneurial behavior.
In their early seminal work, Tversky and Kahneman demonstrated that de-
cision makers may strongly deviate from rationality because of the use of a
number of heuristics, that is, rules of thumb, instead of formal techniques.7
INTRODUCTION
xi
Heuristics influence the perception and processing of information and the in-
tuitive optimization processes used by individuals in selecting their actions. In
Chapter 3, Schade and Koellinger take a decision theory approach to describe
how heuristics and biases can influence decision making in general and why they
are particularly relevant for entrepreneurial behavior.
A major difficulty often encountered by decision makers is that likelihoods
and outcomes are not easy to assess. This is particularly relevant for entrepre-
neurial decisions since potential entrepreneurs are often subject to Knightian
uncertainty.8 That is, they operate in situations in which both outcomes and their
likelihoods are unknown. Schade and Koellinger discuss potential effects of well-
known heuristics and biases by dividing them into three distinct groups:
reference-dependent behaviors, biases in probability perceptions, and biases in
self-perceptions.
Discussing both theoretical and empirical evidence, the authors show that
some types of heuristics and biases, such as the escalation of commitment, illusion
of control, and overconfidence, may be relatively more frequent or significant
among entrepreneurs, while others, such as the status quo bias, are less prevalent.
On the one hand, heuristics are shown to help in managing the complex task of
assessing uncertain future prospects and might even be necessary to act quickly in
uncertain environments. On the other hand, they are shown also to lead to errors
of judgments and suboptimal decisions.
Overall, Schade and Koellinger complement Baron’s analysis since the impact
of heuristics and biases and affective reactions on cognition suggests a mixed
pattern of potential benefits and potential costs. These elements increase entre-
preneurs’ tendencies to cope with uncertainty and to react to situations in creative
ways. At the same time, however, they increase entrepreneurs’ susceptibility to
various cognitive errors.
The decision theory approach taken by Koellinger and Schade’s highlights the
important distinction between heuristics and optimal decision making in risky
situations. Unlike their chapter, whose focus is on deviations from optimal be-
havior, in Chapter 4, Julie Elston and David Audretsch take a standard economics
approach and address the relationship between entrepreneurial behavior and
calculable risk. While Schade and Koellinger deal with the individual’s subjective
perception of uncertain situations, Elston and Audretsch discuss entrepreneurs’
exposure and attitude toward situations in which risk can be objectively mea-
sured. As explained by Koppl in Chapter 1, an important distinction has been
made in the literature between risky and uncertain situations: A decision is in-
herently uncertain if the outcomes resulting from that decision cannot be as-
signed a probabilistic distribution. A decision is risky if its resulting outcome is
uncertain but the probability distribution associated with all outcomes is known.
In asking the question of why some people start businesses while others do
not, much of the entrepreneurship literature has implicitly or explicitly focused
on individuals’ willingness to take on risk. Often, in the literature, entrepreneurs
are described as risk-loving individuals or as individuals willing to take on more
xii
INTRODUCTION
risk than nonentrepreneurs. Within this context, much can be learned from
economics, where behaviors with respect to risk can be analyzed in a rigorous and
systematic way. The starting point to study behavior toward risk is individuals’
tendency to refuse fair games and their natural tendency toward risk aversion.
Thus, taking a risk can be defined as making a choice where the outcome resulting
from that choice is less than certain but can be anticipated with known a priori
probabilities.
Elston and Audretsch argue that entrepreneurs, like all other individuals,
exhibit risk-averse behaviors although, possibly, less than nonentrepreneurs. They
also discuss entrepreneurs’ exposure to risk due to asymmetric information. The
latter creates principal-agent problems that penalize entrepreneurial behavior
more than other business behaviors because, everything else being the same, size
and liability of newness put entrepreneurs at a comparative disadvantage. Accor-
ding to Elston and Audretsch, these are some of the factors behind the standard
characterization of entrepreneurial behavior as being inherently risky.
The economic approach by Elston and Audretsch leads directly to the eco-
nomic analysis of entrepreneurship as an employment choice. In Chapter 5,
Simon Parker provides an overview of the way in which neoclassical econom-
ists have traditionally modeled entrepreneurial behavior. Microeconomists have
a distinctive perspective on entrepreneurship, commonly viewing it in terms
of an occupational choice between paid employment and any form of self-
employment.9 Parker’s chapter starts and develops around the simple funda-
mental equation of occupational choice and addresses the question of who be-
comes an entrepreneur and why. In this basic economic formulation individuals
decide to become entrepreneurs by comparing the profits available to an in-
dividual from self-employment with those that the individuals can obtain from
paid employment given a set of variables influencing the individual’s personal
preference for self-employment.
In the basic occupational choice equation, Parker shows, the relative returns to
self-employment and paid employment are based on the observation that each
individual in a population possesses some ability, which is, however, unequally
distributed. If individuals’ ability increases their self-employment potential but
has no effect on the wage they receive from dependent labor, the more able
individuals select into self-employment. If, on the other hand, their ability in-
fluences also their wage from dependent labor, it is more difficult to determine
who will become self-employed and whether those choices will lead to desirable
aggregate outcomes in terms of quality and quantity of self-employment.
In addition to heterogeneous ability, Parker develops further Audretsch and
Elston’s argument and shows the basic occupational choice equation to be sui-
table also for the study of the relationship between the decision to become self-
employed and risk aversion. The economics literature on this subject has shown
that less risk-averse individuals become entrepreneurs, that the largest firms tend
to be run by the least risk-averse entrepreneurs, that economies in which indi-
viduals are more risk-averse have lower living standards than economies in which
INTRODUCTION
xiii
individuals are less risk-averse, and that in the absence of risk-sharing mechan-
isms, free occupational choice does not maximize welfare and/or efficiency.
Finally, Parker connects the microeconomic approach to insights from psy-
chology and sociology. In particular, he discusses how sociologists have con-
tributed to our understanding of the importance of social interactions and
networks, and argues that entrepreneurship is as much a social as an economic
process. In fact, entrepreneurial behavior does not take place in a vacuum. Ra-
ther, it is embedded in networks of social relationships. Parker’s acknowledgment
of the importance of social interactions is developed further by Christian Simoni
and Sandrine Labory in Chapter 6. Simoni and Labory take a management ap-
proach and review the extent to which entrepreneurial behavior is influenced by
the availability (or absence) of social capital.
Unfortunately, to date no generally accepted definition of social capital exists
and, as a result, several researchers have become critical of the concept.10 Ac-
cording to the more widely accepted definition, social capital lies in the social
structure of a collectivity and in the links that provide individuals with cohe-
siveness, thus facilitating the achievement of shared goals. According to Coleman,
for example, social capital is an attribute of the social structure in which in-
dividuals are embedded and is not privately owned by any of them.11 Thus, social
capital is not provided to individuals through the links of their social networks,
rather it is the links of such networks. This view is consistent with economics
which treats social capital as a resource capable of creating un-traded inter-
dependencies and producing trust thereby reducing transaction costs and en-
couraging sustainable cooperative behavior.12
In Simoni and Labory’s review, and as anticipated by Parker in Chapter 5, the
literature on social capital leads organically to the study of networks, the area in
which more scientific progress has been achieved, partly because of the clearer
identification of the topic of study.13 In general, membership in networks has
been shown to affect entrepreneurial behavior by facilitating exposure to oppor-
tunities, access to knowledge and information, and by legitimating entrepre-
neurial behavior. The interdependence between social capital and entrepreneurial
decisions has been shown also to generate a positive network externality that
increases the information publicly available about starting new businesses.14
Asymmetries in the endowments of social capital, instead, appear to help explain
differentials in entrepreneurial behavior and performance.15
Simoni and Labory provide some suggestions for future research by identi-
fying some gaps in the literature. They note, for example, that the amount of
social capital available to entrepreneurs is usually treated as being exogenously
determined rather than being itself a dynamic and embedded concept. They
further suggest that more research should be carried out on the social capital
factors that play a positive role in the successful continuation and completion of
the entrepreneurial process beyond the start-up stage.
Clearly, the quality, quantity, and use of available social capital are, as pointed
out by Simoni and Labory, determined endogenously by the broader context in
xiv
INTRODUCTION
which individuals live. In Chapter 7, Peter Boettke and Christopher Coyne de-
velop this important point by discussing the relationship between institutions
and entrepreneurial behavior.
Institutions refer to the formal and informal rules governing human behavior
and can vary across time and space. Like Koppl, Boettke and Coyne leverage the
Austrian tradition and, in addition to discussing the importance of institutions,
provide an analysis of the connection between institutions, the market process,
and entrepreneurship. The goal of their chapter is to explore how various in-
stitutional structures influence entrepreneurial behavior and the linkage between
the latter and sustainable economic growth. The underlying logic of the con-
nection between institutions and entrepreneurial behavior is the realization that
institutions provide a framework that guides activity, removes uncertainty, and
makes the actions of others predictable. In short, institutions serve to reduce
transaction costs and facilitate the coordination of knowledge dispersed through-
out society.
Formal and informal institutions influence the behavior of individuals of all
cultures and traditions. Indeed, Boettke and Coyne argue that while cultural
factors may explain some aspects of human behavior, they cannot explain all
behaviors. The same individuals, with the same motivations, will tend to act very
differently under different sets of institutions.16 Thus, institutional arrangements
have major implications for the way we understand economic change and pro-
gress or the lack thereof.
Developing an argument put forward by Baumol, Boettke and Coyne argue
that institutions determine the type of entrepreneurial behavior individuals pur-
sue.17 When engaging in productive activities, such as arbitrage, innovation, and
other socially beneficial behaviors, entrepreneurs foster economic growth by
acting upon previously unexploited profit opportunities and by innovating. In
countries with low growth, they argue, it is not that entrepreneurs are absent or
are not acting, but rather that profit opportunities are tied to socially destructive
behaviors. Thus, the adoption of certain institutions is a necessary condition for
the existence of productive entrepreneurial behaviors since it is the institutional
framework that enables the right type of entrepreneurship.
The analysis put forth in this chapter suggests that in order to adopt in-
stitutions that promote productive entrepreneurial behavior, we need to un-
derstand the conditions and institutions necessary for political entrepreneurs to
adopt such policies. In other words that, since entrepreneurship is a universal
aspect of human action, the entrepreneurial mind-set applies not only to the
private realm, but also to the public arena and the meta-rules followed by pol-
icymakers and that, as a result, appropriate political systems need to be in place.
The importance of institutions conducive to productive entrepreneurship
highlights the crucial role played by markets in creating incentives for productive
entrepreneurial behavior to take place. In Chapter 8, Kent Jones develops the
topic of institutions further by discussing the role of global markets and their
openness in generating an ever-growing pool of entrepreneurial opportunities.
INTRODUCTION
xv
Jones defines globalization as the process of progressive integration of markets
around the world. While the study of domestic entrepreneurs focuses on those
who create new value in their national markets, global entrepreneurship focuses
on how new value is created through international transactions. The chapter
considers the role entrepreneurs play in extracting gains from international trade
and the impact they may have on a country’s comparative advantage and patterns
of trade.
The extent to which entrepreneurs operate abroad depends largely on the type
and incidence of transaction costs, network structures across borders, and on
how knowledge and technology about entrepreneurial opportunities spread.
Jones argues that entrepreneurs are, by definition, creative individuals at the
forefront of market development, who exploit opportunities and introduce in-
novation, change, and dynamism in markets across national borders. As a result,
any policies that limit import competition and the market signals associated with
it are implicit obstacles for entrepreneurs, and to the entire incentive structure of
entrepreneurship itself.
In view of the benefits that come from international entrepreneurship, pol-
icymakers from all countries face the challenge of creating a business environ-
ment that encourages these activities. Thus, Jones argues that a policy agenda
aiming at promoting global entrepreneurship must focus on the progressive
liberalization of global markets. To the extent that entrepreneurial activity is
linked to international trade, agencies such as the World Trade Organization im-
prove the global environment for entrepreneurs through the reduction of politi-
cal risk and uncertainty regarding foreign markets.
To summarize, Chapters 1 through 8 provide a review, from a variety of
disciplinary perspectives, of the main factors that influence entrepreneurial be-
havior such as cognitive processes, heuristic decision making, risk behavior,
economic incentives, social capital, and institutions. In spite of differences in
perspectives, the first eight chapters suggest that the same model of entrepre-
neurial behavior applies to all individuals, regardless of time and place. Namely,
individuals are sensitive to incentives and differ with respect to entrepreneurial
behavior because of differences in their psychological and socioeconomic back-
grounds. And yet, in the last two decades, a significant amount of literature has
addressed issues related to why certain groups seem to be more entrepreneurial
than others. In most cases, such differences may be reduced to differences in
institutional settings which, in turn, influence the socioeconomic environment of
individuals’ actions. Three groups exist, however, that warrant inclusion in this
volume since their analysis, in addition to having very significant policy im-
plications, may provide useful for our understanding of entrepreneurial behavior
in general. The three groups are minorities, immigrants, and women.
In Chapter 9, Jonathan Levie and David Smallbone take a management ap-
proach and ask if, with respect to entrepreneurship, immigrants and ethnic
minorities behave differently from native-born and ethnic majorities. Although
xvi
INTRODUCTION
being an immigrant and a member of an ethnic minority are two very different
things, in practice, these attributes are often, and in most countries, closely
interrelated.
The record on the entrepreneurial behavior of immigrants and ethnic mino-
rities is mixed. Most indicators suggest that rates of entrepreneurial activity differ
between different immigrant and ethnic minority groups within countries, across
countries, and over time. In some countries or regions, for example, some im-
migrant and ethnic minority groups show a high involvement in entrepreneurial
activity, bringing benefits to themselves and the host countries. In other cases, the
same immigrants and ethnic groups perform less well.
Levie and Smallbone’s review of research on ethnic and immigrant entre-
preneurship suggests that ethnic minority and immigrant status, on their own, do
not necessarily imply a higher (or lower) propensity to engage in entrepreneurial
activity. Minorities and immigrants behave exactly like anybody else once other
contingent factors, such as the length of time an individual has lived in the host
country, the circumstances that led to migration, and, especially, the opportu-
nities presented by the host environment, are taken into account.
Although the early literature on ethnic minority entrepreneurship emphasized
the role of cultural differences between ethnic groups as a key element responsible
for differences in entrepreneurship rates, more recent developments in the lit-
erature recognize that focusing exclusively on cultural traits overlooks what all
individuals have in common across cultures, namely alertness to profit oppor-
tunities and the desire to better their lot in life. Specifically, Levie and Smallbone
argue that overemphasizing the role of ethnicity rather than socioeconomic status
neglects to take into account the set of circumstances within the host country. In
other words, that ethnicity and minority status may matter given the contextual
circumstances but not as an autonomous factor.
Finally, in Chapter 10, Patricia Greene, Candida Brush, and Elizabeth Gate-
wood provide a survey of the rapidly expanding research on women’s entrepre-
neurial behavior. Taking a feminist point of view, they follow the development of
the field from the early 1970s up to contemporary works.
In their review, Greene, Brush, and Gatewood point out that research on
women’s entrepreneurial behavior, just as the majority of research on men, was
initially rooted in trait psychology and focused on personal characteristics. The
most frequently studied topics were women’s education, business experience,
skill sets, and psychological profiles including motivations and risk-taking pro-
pensity. Only in the 1980s, Greene, Brush, and Gatewood argue, with the rise of
feminist ideology and its application to the study of women’s entrepreneurship,
did sex begin to be considered as a physiological difference between men and
women, while gender began to refer to differences in patterns of behavior between
the sexes based on values and roles.
Within this context, research focusing on women entrepreneurs and on
women-led businesses studied motivations, internal attributes, entrepreneurial
INTRODUCTION
xvii
tendencies, and organizational behaviors. Unfortunately, the authors write,
studies in this tradition have provided conflicting findings. Some have found that
women display entrepreneurial behaviors that differ from those of men, in
particular with respect to risk-taking and profit motivation.18 Others have found
greater differences across job categories (managers and entrepreneurs) than
across men and women.19 Even in comparative studies, it is unclear whether the
impact of context differs between men and women. Overall, Greene, Brush, and
Gatewood conclude that, in spite of significant progress, the field is still char-
acterized by a variety of inconclusive findings and it is still far from having
developed a comprehensive theory of women’s entrepreneurship.
The study of women entrepreneurship has, very recently, been addressed by
some works rooted in behavioral economics and evolutionary psychology. These
works have provided some evidence that, unlike immigrant and minority status
where no systematic differences appear to exist across groups, some systematic
differences with respect to entrepreneurial behavior may exist between men and
women.20 Although very new, this line of research looks very promising for this
area of inquiry.
To summarize, in this volume, entrepreneurial behavior is described as a
universal aspect of human action related to individuals’ ability to perceive op-
portunities for potential changes that may improve their lives. Entrepreneurs are
individuals motivated by economic incentives, but also by personal aspirations
and social considerations and constraints. Furthermore, since entrepreneurs as-
sess risks and opportunities, their institutional context, both locally and inter-
nationally, matters.
Overall, the volume makes several contributions. First, each chapter provides a
state-of-the-art treatment of a topic and a broad literature review. Second, the
diverse approaches presented across chapters provide interesting perspectives not
only on theory but also on the possibilities of applied methods ranging from
mathematical and econometric formulations, to experimental techniques, to
anthropological and ethnographic methods. Third, all chapters highlight areas of
inquiry where more research is needed. Thus, it is hoped that some readers will be
inspired to take on new and interesting projects.
Finally, and perhaps most important, the volume introduces readers to the
opportunities presented by a true social science approach to the study of en-
trepreneurial behavior. All authors in this volume refer to insights provided from
disciplines other then their own. Thus, although contributions to our under-
standing of entrepreneurial behavior must be grounded in disciplinary founda-
tions such as those of economics, psychology, anthropology, and other social
sciences, only by viewing the study of entrepreneurial behavior as an area of social
science and entrepreneurship as a universal aspect of human actions we can hope
for theoretical unity in entrepreneurship studies. Any other attempt to under-
stand entrepreneurship would have to divide observable behaviors between en-
trepreneurial and nonentrepreneurial. But any such division would have to be
necessarily arbitrary and, therefore, scientifically unsatisfactory.
xviii
INTRODUCTION
NOTES
1. M. Minniti and R. Koppl, ‘‘Market Processes and Entrepreneurial Studies,’’ in
Handbook of Entrepreneurship Research, eds. Z. Acs and D. Audretsch (UK: Kluwer Press
International, 2003), 81–102.
2. W. Baumol, ‘‘Entrepreneurship in Economic Theory,’’ American Economic Review
Papers and Proceedings 2 (1968): 64–71, p. 64.
3. W. B. Gartner, ‘‘Is There an Elephant in Entrepreneurship? Blind Assumptions in
Theory Development,’’ Entrepreneurship Theory and Practice 25, no. 4 (2001): 27–39.
4. I. Kirzner, Competition and Entrepreneurship (Chicago: University of Chicago Press,
1973); I. Kirzner, ‘‘Uncertainty, Discovery, and Human Action: A Study of the En-
trepreneurial Profile in the Misesian System,’’ in Method, Process, and Austrian Econom-
ics: Essays in Honor of Ludwig von Mises, ed. I. Kirzner (Lexington, MA: Lexington
Books, 1982); I. Kirzner, ‘‘Entrepreneurial Discovery and the Competitive Market Process:
An Austrian Approach,’’ Journal of Economic Literature 35 (1997): 60–85; G. O’Driscoll and
M. Mario Rizzo, The Economics of Time and Ignorance (Oxford: Basil Blackwell, 1985).
5. A. Aktipis and R. Kurzban, ‘‘Is Homo Economicus Extinct? Vernon Smith, Daniel
Kahneman and the Evolutionary Perspective,’’ in Evolutionary Psychology and Economic
Theory, vol. 7 of Advances in Austrian Economics, ed. R. Koppl (Amsterdam: JAI, 2004).
6. M. W. Matlin, Cognition, 5th ed. (Fort Worth: Harcourt College Publishers,
2002).
7. A. Tversky and D. Kahneman, ‘‘Judgment under Uncertainty: Heuristics and
Biases,’’ Science 185 (1974): 1124–1131, reprinted in Judgment and Decision Making––An
Interdisciplinary Reader, 2nd ed., eds. T. Connolly, R. A. Hal, and K. R. Hammond
(Cambridge: Cambridge University Press, 2000).
8. F. Knight, Risk, Uncertainty, and Profit (New York: Augustus Kelly, 1921).
9. G. Calvo and S. Wellisz, ‘‘Technology, Entrepreneurs, and Firm Size,’’ Quarterly
Journal of Economics 95 (1980): 663–677; R. E. Kihlstrom and J. J. Laffont, ‘‘A General
Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion,’’ Journal
of Political Economy 87 (1979): 719–749; R. E. Lucas, ‘‘On the Size Distribution of
Business Firms,’’ Bell Journal of Economics 9 (1978): 508–523.
10. S. N. Durlauf, ‘‘Bowling Alone: A Review Essay,’’ Journal of Economic Behavior
and Organization 47 (2002): 259–273; M. Woolcock, ‘‘The Place of Social Capital in
Understanding Social and Economic Outcomes,’’ Canadian Journal of Policy Research 2
(2001): 11–17.
11. J. Coleman, The Foundations of Social Theory (Cambridge, MA: Harvard Uni-
versity Press, 1990).
12. K. Annen, ‘‘Social Capital, Inclusive Networks, and Economic Performance,’’
Journal of Economic Behaviour and Organisation 50 (2003): 449–463.
13. H. Aldrich, Organizations Evolving (Newbury Park, CA: Sage, 1999); P. H. Kim
and H. E. Aldrich, ‘‘Social Capital and Entrepreneurship,’’ Foundations and Trends
in Entrepreneurship 1 (2005): 56–104; M. Jackson and A. Wolinski, ‘‘A Strategic Model
of Social and Economic Networks,’’ Journal of Economic Theory 71 (1996): 44–74;
R. Kranton and D. Minehart, ‘‘A Theory of Buyer-Seller Networks,’’ American Economic
Review 1 (1998): 570–601.
14. M. Minniti, ‘‘Entrepreneurship and Network Externalities,’’ Journal of Economic
Behavior and Organization 57 (2005): 1–27.
INTRODUCTION
xix
15. M. Minniti, ‘‘Organization Alertness and Asymmetric Information in a Spin-Glass
Model,’’ Journal of Business Venturing 19, no. 5 (2004): 637–658.
16. Minniti, 2005.
17. William J. Baumol, ‘‘Entrepreneurship: Productive, Unproductive and Destruc-
tive,’’ The Journal of Political Economy 98 (1990): 893–921.
18. A. MacNabb, J. McCoy, P. Weinreich, and M. Northover, ‘‘Using Identity
Structure Analysis (ISA) to Investigate Female Entrepreneurship,’’ Entrepreneurship and
Regional Development 5, no. 4 (1993): 301–313.
19. E. A. Fagenson, ‘‘Personal Value Systems of Men and Women Entrepreneurs
Versus Managers,’’ Journal of Business Venturing 8 (1993): 409–430.
20. N. Langowitz and M. Minniti, ‘‘Gender Differences and Early-Stage Entrepre-
neurship,’’ Entrepreneurship Theory and Practice (in press); M. Minniti and C. Nardone,
‘‘Being in Someone Else’s Shoes: Gender and Nascent Entrepreneurship,’’ Small Business
Economics (in press).
xx
INTRODUCTION
1
Entrepreneurial Behavior
as a Human Universal
Roger Koppl
The conclusion we can draw from the state of the art of the research on entrepreneurship
is that the most interesting studies are often located at the borders between disciplines,
such as those by economists who reject simple rational models and recognize the in-
fluence of social interaction and culture, or by sociologists and anthropologists who
reject oversocialized conceptions of man and take into account the strategies of indi-
vidual actors.
—Alberto Martinelli1
The central figure in entrepreneurship research is the entrepreneur. This is the
individual without whom our object of inquiry disappears. One might expect,
then, that all our efforts would be based on a clear, scientific understanding of
entrepreneurs and their function. This is not the case, however. We do not know
who the entrepreneur is and what makes him or her an entrepreneur. The pur-
pose of this chapter is to clarify these issues. As we shall see, this task requires us
to establish some foundational points in entrepreneurship theory.
Confusion over the identity of the entrepreneur does not reflect any neglect of
the question by entrepreneurship scholars. On the contrary, the problem has
received considerable attention in the entrepreneurship literature. It is a difficult
scientific problem, however, to decide precisely who is an entrepreneur and what
entrepreneurial behavior is. Different answers have been proposed without a
consensus view emerging.2 Progress and consensus are possible if we are willing
to shift our perspective a bit and recognize entrepreneurial behavior as a universal
aspect of human action.
As I argue below, entrepreneurs are not a class of people distinct from other
persons, and entrepreneurial behavior is not a class of actions distinct from other
actions. Entrepreneurship is an aspect of all human action. Entrepreneurship is
a human universal. If so, then entrepreneurship theory must be a part of a broader
social theory that encompasses many areas, including sociology, psychology,
economics, and finance.
Viewing entrepreneurship as a human universal requires us to view it si-
multaneously as a characteristic of the entrepreneur and a description of what the
entrepreneur does. Entrepreneurs are change agents, which is to say they are in-
novators. To innovate, however, one must be alert to new opportunities for
innovative actions. Thus, our concept of what the entrepreneur does, namely
innovate, implies something about what the entrepreneur is like, namely alert.
The coin has two sides: One side shows us what the entrepreneur is like, while the
other side shows us what the entrepreneur does. Most definitions of entrepre-
neurship today refer to one side of the coin or the other, but not both.
The unified view of entrepreneurial behavior as a human universal was put
forward by Israel Kirzner.3 Kirzner’s theory has been misconstrued as static and
narrowly economic, as the example of Scott Shane illustrates.4 A proper under-
standing of Kirzner’s theory, however, shows that it is a vital and dynamic element
of a general social theory comprising each of the special social and behavioral
sciences such as economics, sociology, and psychology. Kirzner’s theory emerged
from, and is a part of, the modern Austrian school in economics.5 While this
might suggest disciplinary narrowness, the Austrian tradition views economics as
merely one branch of a general social theory. Thus, I will speak of the Austrian
school rather than Austrian economics, and I will speak of post-Kirznerian theory
rather than post-Kirznerian economics.6
The next section gives a quick overview of Kirzner’s theory in the context of
the Austrian school of economics from which it derives. The section following it
examines the problem (as I see it) that entrepreneurship scholars do not have a
common theory. Doing so sets the context for the following section, which
resolves the problem by proposing a unified perspective on entrepreneurial be-
havior. This section develops Kirzner’s theory more carefully, including an ex-
ploration of some of the important dimensions of the theory, such as the role of
uncertainty in creating entrepreneurial opportunities. The section following it
puts flesh on the claim of earlier sections that Kirzner’s theory is transdisci-
plinary. As my epigraph suggests, I share the common view that entrepreneurial
studies must draw on the results of several social science disciplines. It is im-
portant, therefore, to demonstrate that the post-Kirznerian theory I propose is
genuinely transdisciplinary. The final section contains a few closing remarks.
POST-KIRZNERIAN THEORY AND THE MODERN
AUSTRIAN SCHOOL
Israel Kirzner first set out the elements of his theory of entrepreneurial be-
havior in his 1973 book, Competition and Entrepreneurship.7 In this work, he gives
entrepreneurship a double meaning. First, it is alertness to new opportunities.
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Second, it is the arbitrage that follows the alert discovery of an opportunity.
According to Kirzner, alertness ‘‘is present in all human action’’ and is ‘‘an ele-
ment which, although crucial to economizing, maximizing, or efficiency criteria,
cannot itself be analyzed in [those] terms.’’8
Kirzner contrasted his model of entrepreneurial behavior with the ‘‘rational
choice’’ model of neoclassical economics.9 In Kirzner’s early statement of the
theory in 1973, entrepreneurs live in the static world of neoclassical economics.
Alertness to new opportunities is the vital human element missing from the
rational choice model. In such a world, the only entrepreneurial opportunities to
be found are opportunities for risk-free simultaneous arbitrage. These arbitrage
opportunities all come from preexisting price differences. Thus, entrepreneurial
opportunities were just ‘‘out there’’ waiting to be discovered. Kirzner chose to
place his entrepreneurs in such a thin and timeless world because he was ad-
dressing neoclassical economists. Kirzner showed that the static models of neo-
classical economics (c. 1973) required the addition of entrepreneurial behavior.
The equilibrium assumed by neoclassical theory could never be reached without
entrepreneurial behavior because movement toward equilibrium requires some-
one to change his plans and that cannot happen without entrepreneurial alert-
ness. Even static neoclassical economic theory requires an agent of change,
namely, the entrepreneur.
The robot of old-fashioned neoclassical economics, however, could never
change its program of action. A new program, a new ends-means framework,
cannot itself be part of the old program; otherwise it would not be new. Real
people, however, do change their programs of action. They are alert to oppor-
tunities for gain and change their plans whenever they discover one. In Com-
petition and Entrepreneurship, Kirzner had shown that even if you had the static
world of neoclassical economics, you would still need entrepreneurial behavior to
bring order to events. Unfortunately, the ‘‘even if ’’ assumption of a static world
has often been mistaken for a necessary assumption of his theory. The truth is
almost the opposite. Indeed, Kirzner made a radical departure from static as-
sumptions in 1982 with the publication of his article ‘‘Uncertainty, Discovery,
and Human Action: A Study of the Entrepreneurial Profile in the Misesian
System.’’10
In seminars and private conversations, Kirzner has repeatedly insisted that the
static assumptions of Competition and Entrepreneurship were meant as simpli-
fying assumptions suited to his audience and purpose and were never meant to
deny the dynamic points about time and uncertainty that were the center of his
1982 article. He has repeatedly cited his 1982 paper as an important statement
clarifying the meaning of his 1973 book and has indicated to me that the three
main statements of his position are Competition and Entrepreneurship (1973),
‘‘Uncertainty, Discovery, and Human Action’’ (1982), and ‘‘Entrepreneurial Dis-
covery and the Competitive Market Process’’ (1997).11
It is useful to distinguish the seemingly static theory of Kirzner’s Competition
and Entrepreneurship from the subsequent writings of the modern Austrian
ENTREPRENEURIAL BEHAVIOR AS A HUMAN UNIVERSAL
3
school. I will use the term post-Kirznerian theory to identify these later works, in
which time and uncertainty are central elements.12 Kirzner’s 1982 article is the
first important contribution to post-Kirznerian theory.13 The Economics of Time
and Ignorance, by O’Driscoll and Rizzo, is the second.14 Together they helped
establish time and uncertainty as essential to our thinking about entrepreneurial
behavior.15
Post-Kirznerian theory has produced an institutionally rich theory, in which the
dynamic market process creates not only uncertainty, but also opportunities for
entrepreneurial action. Post-Kirznerian theory integrates economic, sociological,
and psychological perspectives in the context of a vision of the dynamic market
process as a complex adaptive system. In ‘‘Austrian Economics at the Cutting
Edge,’’ I explain how post-Kirznerian theory relates to modern economics.16
Post-Kirznerian theory has an important advantage for entrepreneurship
theory: It is not (as we might say) econo-centric. In other words, post-Kirznerian
theory recognizes that economic action, and all human action, happens in a social
context that shapes the goals and thinking (the cognition) of the people taking
those actions.17 Post-Kirznerian theory builds on the broad notion of human
action, rather than the narrow ideas of economic man.18 It replaces homo eco-
nomicus with homo sapiens.19 Thus, in post-Kirznerian theory, traditional eco-
nomics is merely one branch of a unified social science. Kirzner’s teacher Ludwig
von Mises used the term praxeology to identify this general theory of social sci-
ence. Economics, Mises explained, is ‘‘a part, although the hitherto best elabo-
rated part, of a more universal science, praxeology.’’20 Following Mises, Kirzner
said, ‘‘The praxeological view sees economic science as the branch of praxeology
that has been most highly developed.’’21, 22
The Austrian context of post-Kirznerian theory is important. Entrepreneur-
ship research is highly interdisciplinary. This interdisciplinarity has been an
obstacle to a comprehensive theory of entrepreneurial behavior. One researcher
emphasizes economic factors, another emphasizes psychological factors, and still
another emphasizes sociological factors. The Austrian school, however, is trans-
disciplinary. It represents that much needed integrated view of social science I
mentioned earlier. Post-Kirznerian theory is thus able to integrate insights from
different disciplines. It gives us theoretical foundations for a unified view of
entrepreneurial behavior, showing that the field is defined not by its object of
inquiry, but by its point of view.23
THE PROBLEM
I have noted earlier that there is no consensus on who is an entrepreneur. This
fact reflects a difficulty with entrepreneurship research that might be attributed to
its relative youth as a separate discipline.24 Entrepreneurship research today is
rich in facts but poor in theory. Entrepreneurship scholars have produced many
important empirical results. No broad theoretical framework has yet emerged,
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however, that might give them coherence and order. But there is no progress
without theory. Without a broad theoretical framework for scholarly work in
entrepreneurship, it is hard to decide which empirical results are complementary
and which are contradictory, which are more important and which less. It is hard
to know what general inferences to draw and which puzzles and questions are
most worth examining. ‘‘We are getting more pieces of the puzzle, but no picture
is emerging.’’25
I have said that there are many empirical works in entrepreneurial studies,
but no unifying theory. This claim should not be taken to imply that these em-
pirical works are, somehow, theory free. They often have quite strong theoretical
grounding. But there is little or no theoretical consistency from one scholar to the
next and one study to the next. I believe the root cause of this unproductive form
of theoretical diversity is the lack of generally agreed upon criteria for what
counts as entrepreneurial behavior. Along similar lines, Shane and Venkataraman
say, ‘‘Perhaps the largest obstacle in creating a conceptual framework for the
entrepreneurship field has been its definition.’’26
Within entrepreneurial studies, two competing notions of entrepreneurship
dominate. On the one hand, entrepreneurship may refer to what entrepreneurs are
like. On the other hand, it may refer to what the entrepreneur does. This basic
division was already in place in 1990 when Gartner published a study showing
that the professionals he surveyed fell into two groups, each with a different basic
concept of entrepreneurship. The first group thought of the characteristics of
entrepreneurship and the second thought of the outcomes of entrepreneurship
such as creating value or owning an ongoing business.27
Gartner’s first definition, concerning the characteristics of entrepreneurship, is
most commonly identified today as opportunity recognition. Entrepreneurs are
distinguished by their propensity to recognize opportunity.28 Advocates of this
definition of entrepreneurship include Shane and Venkantaraman.29 Gartner’s
second definition, concerning the outcomes of entrepreneurship, is most com-
monly identified today as innovation and firm formation. Entrepreneurs launch
innovations and found enterprises. Advocates of this definition of entrepreneur-
ship include Low and MacMillan.30
Many scholars in management and entrepreneurship believe that opportunity
recognition is the characteristic feature of entrepreneurial behavior. Others in
this field believe that firm formation or innovation is the characteristic feature of
entrepreneurial behavior. Both concepts are quite reasonable, and a good case
can be made for either one. I am not aware of any compelling argument to aban-
don one of the two in favor of the other. And because each definition excludes the
other, neither one enables us to enjoy the full benefits of the diversity of disci-
plinary perspectives relevant to entrepreneurship.31
We need a broad theory of entrepreneurship that will bring order, coherence,
and unity to the growing body of empirical research in entrepreneurship. In this
sense, we need a unifying theory. In this essay I will not pretend to provide all
details of such a theory. I will, however, attempt to explain the most important
ENTREPRENEURIAL BEHAVIOR AS A HUMAN UNIVERSAL
5
and fundamental elements of such a theory. The first and most important task of
such a theory is to give a coherent account of the entrepreneur as an individual.
In this section, I have pointed to the theoretical incoherence and disunity of
studies of entrepreneurship and to the need for a unified theory. I explain the
elements of such a theory in the next section, where I argue that post-Kirznerian
theory offers a unified perspective, encompassing both opportunity recognition
on the one hand and innovation and firm formation on the other.
A UNIFIED PERSPECTIVE ON
ENTREPRENEURIAL BEHAVIOR
The post-Kirznerian theory of entrepreneurial behavior I propose in this essay
might be divided into three main pieces. First, there are the most fundamental
elements identifying what entrepreneurs do and what entrepreneurs are like. As
we shall see, the key concepts are alertness, discovery, and innovation. Thus, the
first subsection that follows discusses the elements of post-Kirznerian theory.
Second, we may ask what sort of a world permits alert entrepreneurs to discover
opportunities for profitable innovations. Thus, the second subsection that fol-
lows argues that such innovations are possible only in the context of ‘‘uncer-
tainty’’ and explains the post-Kirznerian theory of uncertainty. Third, we may ask
how entrepreneurs gear into the world. How do they put their innovations into
practice? Addressing this question, the third and final subsection examines the
entrepreneurial process.
Fundamental Elements of Post-Kirznerian Theory
Post-Kirznerian theory, I have said, can offer us a unified perspective on
entrepreneurial behavior. The key concepts are Israel Kirzner’s twin notions of
alertness and innovation and his notion of discovery as a bridge linking alertness
to innovation. As I will explain presently, alertness leads necessarily to discovery
and discovery leads necessarily to innovation.
Alertness is the leading concept in post-Kirnzerian theory. Alertness is alert-
ness to opportunities. We are alert to opportunities to revise our plans and habits,
to do something new. Thus, we are alert to desirable ways of changing the ends-
means framework with which we have been operating.32 If the prospective change
is desirable, it is because it seems to offer a gain, that is, a profit. Discovery is
finding such a profit opportunity. As the term is used in post-Kirnerzian theory,
an entrepreneur may discover the results of his or her own creative imagination.
Sometimes the entrepreneur discovers what is ‘‘out there’’; sometimes the en-
trepreneur discovers his or her own creation. Finally, when a discovery is made,
the entrepreneur acts on it by taking the innovative action newly available. The
concept, though not the word, innovation is prominent in Kirzner’s work. As I
note again here, for Kirzner, the element in decision making that ‘‘cannot ... be
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explained by [standard economic] rationality’’ is ‘‘the selection of the ends-
means framework’’ within which action occurs. Kirzner notes that the selection
of an interpretive framework is ‘‘essentially creative.’’33 This ‘‘creative’’ act is
necessarily an innovation for the person undertaking it. Thus, the concept of
innovation is essential to Kirzner’s theory even though he tended to use a dif-
ferent vocabulary. The new action may, of course, be the founding of a new
enterprise.
Kirzner recognized the creative element in entrepreneurship in the seminal
article of 1982 to which I have referred already. There he notes that ‘‘[a]lertness
must, importantly, embrace the awareness of the ways in which the human agent
can, by imagination, bold leaps of faith, and determination, in fact create the
future for which his present acts are designed.’’34 He cites favorably Lawrence
White’s remark that ‘‘[e]ntrepreneurial projects are not waiting to be sought out
so much as thought up’’ and Ludwig Lachmann’s dictum that ‘‘[t]he future is
unknowable, though not unimaginable.’’35
This brief sketch of the theory of entrepreneurship would seem to apply quite
widely and well beyond the context of creating a new business. And indeed it
does. At the highest level of abstraction, entrepreneurship is an aspect of action.36
Thus, we may use a simple and homey example to illustrate the leading ideas of
the post-Kirznerian theory of entrepreneurial behavior.
A professor walks the same route to class every day.37 His path is optimal given
his knowledge; it gets him there in the least time. One day he discovers that a
slightly roundabout route allows him to avoid his dean, who usually pesters
him along his accustomed path. He takes the new route and avoids the dean.
Our professor has found a new ends-means framework. He had been minimiz-
ing travel time; he now minimizes the bother of getting to class, considering
both travel time and obnoxious deans. Thus, his ends have changed. The means
have changed too; he takes a different route. Our professor could have made
this change only by being alert to the opportunity to improve his situation by
changing his route. The new, roundabout route was a profit opportunity; he
could profit by switching to the new route. When he discovered it, his actions
changed. His actions had to change if the new route was truly a profit oppor-
tunity. For him this is an innovation. If he had considered the new route but
found it to be too long, then it would not have been a true profit opportunity and
he would not have taken it. Of course, the dean may find the professor along the
new route too and the new plan may fail. It is not profit that drives the professor
to the new route but the expectation of profit.
As I have noted already, in post-Kirznerian theory, entrepreneurship is an
aspect of action. In Kirzner’s words, ‘‘[T]he entrepreneurial element cannot be
abstracted from the notion of individual human action.’’38 This fact follows from
what I will call the ‘‘groundhog principle.’’ The groundhog principle says that
every context for action is in some degree novel, if only because the actor has lived
through all his previous experiences before the current situation arose. This point
was made by the philosopher Henri Bergson and, perhaps, by others before
ENTREPRENEURIAL BEHAVIOR AS A HUMAN UNIVERSAL
7
him.39 More recently, it was used as a plot device in the Hollywood movie
Groundhog Day.40 The protagonist rises each day to find that it is precisely the
same as the previous day. Every day is February second; every day is Groundhog
Day. The townspeople are unaware of this and behave identically on each re-
peated day. But the protagonist is aware of the past Groundhog Days and behaves
differently from repeated day to repeated day. Even in the fantasy setting of this
Hollywood movie, every context for action is in some degree novel, if only
because the individual has lived through all his or her previous experiences before
the current situation arose. This insight is the groundhog principle.
The protagonist of Groundhog Day varied his actions over time, sometimes
slightly, sometimes radically. By the groundhog principle, he was always facing
something at least a little bit new and unprecedented. Thus, he had to improvise
even if only slightly. The groundhog principle tells us, then, that all action must
be in some degree an improvisation. To improvise is to do something new and
different. It is to innovate. Thus, all action is innovation. But an innovation im-
plies a previous discovery of an opportunity. And such a discovery can be made
only if the actor is alert.
It is only by viewing entrepreneurship as an aspect of all human actions that
we can hope for theoretical unity in entrepreneurship studies. Any other ap-
proach to identifying entrepreneurial behavior would have us divide observable
behaviors into those we will classify as entrepreneurial and those officially labeled
nonentrepreneurial. But any such division is more or less arbitrary and open to
objection. For example, if ‘‘opening a business’’ is the dividing line, some will
object that ‘‘intrapreneurs’’ and social entrepreneurs are wrongly excluded.
Although entrepreneurship is an aspect of all human actions, most studies in
entrepreneurship will, presumably, be conducted at a somewhat lower level of
abstraction. The operational meaning of entrepreneurship will often be ‘‘starting a
new business.’’ Almost by definition, however, any theory capable of integrating
the many diverse strands of entrepreneurship research will have to be relatively
abstract and general. At the highest level of abstraction, all persons are entre-
preneurs, entrepreneurial behavior is a human universal, and the theory of en-
trepreneurship is a way of looking at all human action. Thus, entrepreneurship
theory is the social science that views social processes from the perspective of the
element of change and improvisation in all human action. For this reason it is
sensible to have theories of corporate entrepreneurship, social entrepreneurship,
political entrepreneurship, and so on. As mentioned earlier, the field is not de-
fined by its object of inquiry, but by its point of view.41
As we have seen in the context of the groundhog principle, every context for
action is in some degree novel and every action is in some degree an improvi-
sation. Thus, entrepreneurs live in an uncertain world. Indeed, what sense would
it make to imagine innovative entrepreneurs in a mechanical world without
uncertainty? Uncertainty is an important and, I shall argue, necessary element of
the world in which entrepreneurs act. It is important, therefore, to have as much
clarity as we can about the nature of uncertainty and its influence on action.
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Thus, the next subsection examines the post-Kirznerian theory of entrepreneurial
uncertainty.
A Post-Kirznerian Understanding of Entrepreneurial Uncertainty
Israel Kirzner’s teacher, Ludwig von Mises, defined the entrepreneur as an
‘‘acting man exclusively seen from the aspect of the uncertainty inherent in every
action.’’42 As the word is used here, uncertainty is distinguished from risk. When
numerical probabilities (1) exist, (2) are known, and (3) cover all possibilities, the
situation is one of risk. When one or more of these three conditions fails the sit-
uation is one of uncertainty, not risk. In situations of risk, one may apply the
probability calculus and the logic of Bayesian decision making. In situations of
uncertainty this is generally not possible.43
Discussions of risk and uncertainty can grow complicated. For example, in the
last paragraph I spoke of situations of risk and situations of uncertainty without
specifying whose perceptions of risk and uncertainty matter. If I observe someone
rolling dice who cannot calculate the probabilities involved, we might say that
this is a situation of risk because we, the observers, know the probability of each
outcome. We might, however, say that this is a situation of uncertainty because
the person rolling the dice does not know the relevant probabilities. Some writers
rank situations of uncertainty according to how fundamental, in some sense, the
uncertainty is.44 From such a perspective, it may seem a mild form of uncertainty
when probabilities are merely hard to calculate, whereas a more fundamental
uncertainty exists when different outcomes do not exist ahead of time. ‘‘Funda-
mental uncertainty,’’ Dequech says, ‘‘is characterized by the possibility of crea-
tivity and non-predetermined structural change. The list of possible events is not
predetermined or knowable ex ante, as the future is yet to be created.’’45
Kirzner’s concept of uncertainty is close to Dequech’s ‘‘fundamental uncer-
tainty.’’ In the ‘‘open-ended’’ world Kirzner imagines, entrepreneurial behavior is
linked to ‘‘the unpredictable, the creative, the imaginative expressions of the
human mind.’’46 Kirzner links uncertainty to ‘‘an element’’ in decision making
that ‘‘cannot ... be explained by [standard economic] rationality,’’ namely, ‘‘the
selection of the ends-means framework’’ within which action occurs.47 The se-
lection of an interpretive framework is ‘‘essentially creative.’’48 Kirzner empha-
sizes that uncertainty in his sense is not just the difficulty of forecasting. For
Kirzner, it ‘‘is not a matter of two unfolding tapestries, one the realized future, the
second a fantasized [picture of ] what the first might look like.’’ Instead, the
entrepreneur is ‘‘motivated to bring about correspondence’’ between his vision
and reality.49
Kirzner’s last point may deserve some elaboration. Consider a theater patron
after the second act. He does not know what will happen in the third act. He
might guess, but his guesses will not influence what the actors do on stage. Social
scientists often think of uncertainty in such theater-going terms. It is an error to
do so. Post-Kirznerian theory recognizes that entrepreneurs are not like theater
ENTREPRENEURIAL BEHAVIOR AS A HUMAN UNIVERSAL
9
patrons. They can act, and their actions are aimed precisely at changing the
future. As Butos and I have put it, ‘‘our knowledge of future events is in the form
of a kind of architecture of the situation. The future is not a sequence of specific
events, but a field of action. Indeed, if the future were not uncertain for the
passive observer, it could not be the object of action for the active participant.
We act in the world precisely to change the course of events. Uncertainty does not
prohibit action; it makes action possible.’’50
As we have seen, in post-Kirznerian theory the entrepreneur acts in and
through time. No time, no uncertainty. The passing of time implies that entre-
preneurial innovations are launched over time and come to fruition only after the
passage of some time, however much or little. Thus, post-Kirznerian theory im-
plies that there is an entrepreneur process that carries an entrepreneur from his
first moment of alertness to the final execution of a plan of action. The next
subsection examines this entrepreneurial process.
Austrian Understandings of the Entrepreneurial Process
Post-Kirznerian theory recognizes that, because entrepreneurial opportunities
may be complex, there is an entrepreneurial process. This process may be de-
scribed by the ‘‘logic of effectuation’’ described by Sarasvathy.51 Entrepreneurial
plans start out vague. They are refined and altered as entrepreneurs put the pieces
together. They are making a deal or a linked set of them. Thus, they must adjust
to the wishes of others. They will learn from them too. The plans they finally
execute are the results of this process. In this sense, the entrepreneur’s plans are
endogenous to the process of negotiation with other stakeholders in the enter-
prise that eventually emerges from this same process.52
A broadly similar analysis of the entrepreneurial process has been provided by
Harper.53 As Minniti and I have explained, ‘‘Harper suggests that the entrepre-
neurial process is similar to the scientific process of conjecture and refutation’’ as
articulated in the philosophy of Karl Popper.54 ‘‘Entrepreneurship,’’ for Harper,
‘‘begins with the alert discovery of an opportunity,’’ which is ‘‘like the scientist’s
conjecture’’ because it is ‘‘a prediction (of success in the marketplace) that must
be tested.’’ The test is made through market research or talking to others. The
entrepreneur learns from this ‘‘test’’ and modifies his plan, which is then subject
to another similar ‘‘test.’’ The process may repeat any number of times. Even-
tually, entrepreneurs put their ideas to a market test. That experience produces
new learning, which inspires entrepreneurs to revise their business plans again. In
Harper’s theory, therefore, the process is ongoing.55
The entrepreneurial process as described by Sarasvathy might seem to suggest
that entrepreneurs do not calculate.56 As Minniti and I have explained, however,
even the simplest entrepreneurial opportunity requires calculation.57 If I am to
buy here and sell there, I had better compare the two prices to be sure that the
selling price exceeds the buying price—and that is a calculation. More complex
cases require more complex calculations, which may also be less certain. However
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much inspiration and creativity enter the entrepreneurial process, each new (con-
tingent) business plan requires new calculations of prospective profit.
The nature of the entrepreneurial process is incompletely understood. It is an
area requiring close empirical study. Austrian understandings of entrepreneurial
behavior recognize both the vital element of radical or fundamental uncertainty
and the centrality of numerical calculations of prospective profit. Some discus-
sions of the entrepreneurial process implicitly deny the uncertainty inherent in all
human action, or model it as a probabilistic risk. Other discussions, in contrast,
emphasize fundamental uncertainty, while ignoring or denying the importance of
monetary calculation. Post-Kirznerian theory, instead, has always recognized that
monetary calculations are our best guide in a world of radical uncertainty.58
In this section, I have outlined the elements of a post-Kirznerian theory of
entrepreneurship. The most fundamental elements of the theory are the concepts
of alertness, discovery, and innovation. By the groundhog principle, we know
that alertness, discovery, and innovation are possible only in a world of time and
uncertainty. We thus examined both the entrepreneurial process and the post-
Kirznerian theory of uncertainty. I believe that these elements of post-Kirznerian
theory will prove to be useful, indeed, indispensable foundations for a unified
theory of entrepreneurial behavior. If that claim is correct, however, it must be
consistent with the long-established fact that the field of entrepreneurial studies
draws on the results of several social science disciplines and is, in this sense,
transdisciplinary, as explained in the next section.
DISCIPLINARY AND TRANSDISCIPLINARY PERSPECTIVES
ON ENTREPRENEURIAL BEHAVIOR
Post-Kirznerian theory allows us to examine the entrepreneur from several
diverse perspectives, including those of complexity theory, management, finance
economics, sociology, and psychology. Unfortunately, Kirzner’s work has some-
times been misconstrued as somehow prohibiting researchers from taking a
transdisciplinary approach. Scott Shane provides a rather flamboyant example of
this error.59
Shane contrasts psychological approaches to entrepreneurship with the sup-
posed approach of the Austrian school.60 From the post-Kirznerian perspective,
this is a puzzle. While Kirzner himself did largely eschew psychological inquiries,
especially in Competition and Entrepreneurship, he explicitly recognized that
psychological factors influence the different degrees of alertness characterizing
different people. ‘‘To be a successful entrepreneur,’’ Kirzner explains, ‘‘requires
vision, boldness, determination, and creativity. There can be no doubt that in the
concrete fulfillment of the entrepreneurial function these psychological and
personal qualities are of paramount importance. It is in this sense that so many
writers are undoubtedly correct in linking entrepreneurship with the courage and
vision necessary to create the future in an uncertain world.’’61 Under Kirzner’s
ENTREPRENEURIAL BEHAVIOR AS A HUMAN UNIVERSAL
11
direction, Benny Gilad (1981) wrote a dissertation on entrepreneurship that
relied on a psychological concept that was explicitly dismissed by Shane as, some-
how, inconsistent with the Austrian school, namely, ‘‘locus of control.’’62 Citing
Gilad, the Austrian economist David Harper makes use of this same psycho-
logical concept of locus of control to explain both why some individuals are more
entrepreneurial than others and why different social and legal institutions tend
to produce different levels of entrepreneurship in the populations subject to
them.63
Shane’s notion that the psychological dimension of entrepreneurship is some-
how denied by the Austrian school becomes even more puzzling when we con-
sider that learning is, after all, a psychological phenomenon. It was the great
Austrian economist F. A. Hayek who first argued that any statement about the
process of equilibration is necessarily a statement about entrepreneurial learning.
The ‘‘assertion that a tendency toward equilibrium exists,’’ Hayek explained, ‘‘can
hardly mean anything but that, under certain conditions, the knowledge and
intentions of the different members of society are supposed to come more and
more into agreement or, to put the same thing in less general and less exact but
more concrete terms, that the expectations of the people and particularly of the
entrepreneurs will become more and more correct.’’64 Hayek’s 1937 article is a
classic of the Austrian school and of modern economics. It is a part of the cannon
of post-Kirznerian theory just as it was part of the cannon of the Austrian school
before the post-Kirznerian stage. Kirzner’s theory was always a theory about
learning in the market process and learning, as I have noted, is a psychological
process. Far from being inconsistent with the Austrian school, as Shane claims,
the psychological understanding of entrepreneurship is central to it.
Entrepreneurs are social actors. Therefore, social psychology should not be
neglected by scholars of entrepreneurship. Evolutionary psychology is an im-
portant recent development that has not yet had as great an influence on entre-
preneurial studies as it probably deserves.65 The recent revolution in cognitive
science may also prove useful to entrepreneurship researchers. The new field of
neuroeconomics is an important part of this revolution.66
Like psychology, sociology is an important perspective on the entrepreneur.
Post-Kirznerian theory is better suited to integrate the economic and sociolog-
ical perspectives than, perhaps, any other modern school of economics. Post-
Kirznerian theory builds on the foundations of sociology of Max Weber and
Alfred Schutz.67 Thus, it is not imperialistic toward sociology or, indeed, any
other social science or business discipline. The Weberian tradition is only one of
the many valuable sociological traditions on which scholars of entrepreneurship
should build. Among them, Mark Granovetter’s network analysis has provided
important tools of analysis as illustrated by the work of Howard Aldrich.68
Psychology, sociology, and economics are but three of the many disciplines
upon which scholars of entrepreneurship should draw. Complexity theory, for
example, helps us to understand how the actions of individual entrepreneurs
influence the overall behavior of the system. Minniti provides an important
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example of how to link individual action and overall outcome in the context of a
complexity model.69
Between economics and sociology is the important field of economic sociol-
ogy as developed by Richard Swedberg et al.70 Unfortunately, entrepreneurship
scholars do not seem to have made much use of this literature, in spite of several
works from this tradition that directly address issues in entrepreneurship.71 This
fact may represent an opportunity for an academic entrepreneur to bring the lit-
erature on economic sociology into greater contact with the literature in entre-
preneurial studies.
Thus far, I stressed that scholars of entrepreneurship should not construe
post-Kirznerian theory to exclude psychological or sociological insights. Nor
should they dismiss insights coming from traditions in economics other than the
modern Austrian school, for example, Schumpeter and modern evolutionary
economics.72 Complexity economics has proved useful to entrepreneurial studies
as noted earlier. The foundational work of William Baumol shows that orthodox
neoclassical economics has in fact an important place in the study of entrepre-
neurship and should be taken very seriously.73
CONCLUSION
The entrepreneur is the central individual in entrepreneurial studies. We have
not had, however, a clear and well-developed theory of the entrepreneur. In this
chapter, I have tried to show that post-Kirznerian theory gives us a useful and,
indeed, necessary theory of the entrepreneur. The key to doing so is Kirzner’s
insight that what the entrepreneur is like (alertness) necessarily determines what
he does (innovate).
Martinelli argues that ‘‘future research on entrepreneurship’’ should adopt ‘‘a
multidisciplinary comparative approach, capable of integrating the analysis of
the context (market, social structure, culture) with a theory of the actor (both
individual or collective) with his or her motives, values, attitudes, cognitive
processes, and perceived interests.’’74 Post-Kirznerian theory and the Austrian
school provide the theoretical framework, which allows us to integrate the many
different disciplinary perspectives Martinelli rightly calls for. Without such a
framework, no integration is possible and the different disciplinary perspectives
on entrepreneurial behavior will remain so many separate pieces sitting side by
side.
We study entrepreneurial behavior in order to uncover new and important
facts about the world. Thus, the benefit of the post-Kirznerian approach to the
entrepreneur comes from applied studies. Often the operational meaning of ‘‘the
entrepreneur’’ will be some measure of founding a business. I say ‘‘some mea-
sure’’ for a reason. In empirical studies it can become a delicate matter to decide
the operational meaning of founding a business. In psychology-based studies,
however, entrepreneurship may have more to do with personal qualities such as
ENTREPRENEURIAL BEHAVIOR AS A HUMAN UNIVERSAL
13
an ‘‘internal locus of control.’’ Although everyone is an entrepreneur, some of us
have more entrepreneurial alertness than others. Entrepreneurial studies must
continue to produce work on the vital question of why this is so. What are the
personal and social, psychological, and institutional factors that influence the
degree of entrepreneurial alertness in the system? Baumol asks the related ques-
tion of what social factors determine the direction of entrepreneurial alertness.
Only the sort of general theoretical vision I have outlined in this chapter allows us
to absorb and coordinate knowledge from studies asking all these different sorts
of questions without falling into conceptual confusion or empty eclecticism.
Conceptual clarity about what, precisely, we mean by ‘‘the entrepreneur’’ re-
quires us to recognize that entrepreneurship is an aspect of action. In this sense,
everyone is an entrepreneur. I believe that we cannot hope for theoretical clarity
in entrepreneurial studies without this broad understanding of who the entre-
preneur is. For this reason, I have argued for the view that entrepreneurship
theory is the social science that views social processes from the perspective of the
element of change and improvisation in all human action.
NOTES
1. A. Martinelli, ‘‘Entrepreneurship,’’ in International Encyclopedia of the Social and
Behavioral Sciences, eds. N. J. Smelser and P. B. Baltes (Amsterdam: Pergamon, 2001),
4551.
2. W. B. Gartner, ‘‘Is There an Elephant in Entrepreneurship? Blind Assumptions in
Theory Development,’’ Entrepreneurship Theory and Practice 25, no. 4 (2001): 27–39.
3. I. Kirzner, Competition and Entrepreneurship (Chicago: University of Chicago
Press, 1973); I. Kirzner, ‘‘Uncertainty, Discovery, and Human Action: A Study of the
Entrepreneurial Profile in the Misesian System,’’ in Method, Process, and Austrian Eco-
nomics: Essays in Honor of Ludwig von Mises, ed. I. Kirzner (Lexington, MA: Lexington
Books, 1982); I. Kirzner, ‘‘Entrepreneurial Discovery and the Competitive Market Pro-
cess: An Austrian Approach,’’ Journal of Economic Literature 35 (1997): 60–85.
4. S. Shane, ‘‘Prior Knowledge and the Discovery of Entrepreneurial Opportunities,’’
Organization Science 11, no. 4 (2000): 448–469.
5. R. Koppl, ed., Austrian Economics and Entrepreneurial Studies, vol. 6 of Advances
in Austrian Economics (Amsterdam: JAI, 2003) brings Austrian economics and entre-
preneurial studies together. See especially M. Minniti,
‘‘Entrepreneurship Studies:
A Stocktaking,’’ in Austrian Economics and Entrepreneurial Studies, vol. 6 of Advances in
Austrian Economics, ed. R. Koppl (Amsterdam: JAI, 2003); and R. Koppl, ‘‘Gains from
Trade between Austrian Economics and Entrepreneurial Studies: An Introduction to the
Volume,’’ in Austrian Economics and Entrepreneurial Studies, vol. 6 of Advances in Aus-
trian Economics, ed. R. Koppl (Amsterdam: JAI, 2003).
6. The Austrian school is not a school of economics, but a school of social theory.
Post-Kirznerian theory is not a theory of economics, but a theory of society; it is a social
theory. Economics is but one branch of social theory.
7. Op. cit., note 3.
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8. Ibid., 31.
9. The term neoclassical economics can have a fluid meaning. But at the time Kirzner
wrote Competition and Entrepreneurship, there was a well-entrenched neoclassical or-
thodoxy. In this old-fashioned orthodoxy, hyperrational agents acted in a world of cer-
tainty or, at best, merely probabilistic uncertainty.
10. Op. cit., note 3.
11. Ibid.
12. The main point distinguishing post-Kirznerian economics is the role of time and
uncertainty emphasized by Ludwig Lachmann. L. Lachmann, ‘‘The Role of Expectations
in Economics as a Social Science,’’ in Capital, Expectations, and the Market Process, ed.
W. Grinder (Kansas City, Missouri: Sheed Andews and McMeel, 1977). Karen Vaughn
explains Lachmann’s importance in this connection in her 1994 book. K. Vaughn, Aus-
trian Economics in America: The Migration of a Tradition (Cambridge: Cambridge Uni-
versity Press, 1994).
13. Op. cit., note 3.
14. G. O’Driscoll and M. Mario Rizzo, The Economics of Time and Ignorance (Oxford:
Basil Blackwell, 1985).
15. My own interpretation of this tradition is given in R. Koppl, Big Players and the
Economic Theory of Expectations (London: Palgrave Macmillan, 2002). This work includes
a post-Kirznerian theory of entrepreneurship in Chapter 6. In that theory, I rely on
Alfred Schutz’s notion of relevancy to explain how the structure of the entrepreneur’s
knowledge guides his actions. See A. Schutz, ‘‘The Well-Informed Citizen,’’ in Alfred
Schutz: Collected Papers II: Studies in Social Theory, ed. A. Brodersen (The Hague: Mar-
tinus Nijhoff, 1964) and A. Schutz, ‘‘Choosing Among Projects of Action,’’ in Alfred
Schutz: Collected Papers I: Studies in Social Theory, ed. M. Natanson (The Hague: Mar-
tinus Nijhoff, 1962).
16. R. Koppl, ‘‘Austrian Economics at the Cutting Edge,’’ Review of Austrian Eco-
nomics 19, no. 4 (2006): 231–241. The paper is a transcript of my presidential address
before the Society for the Development of Austrian Economics. I argue that Austrian
economics is a part of the heterodox mainstream of modern economics. Recent devel-
opments such as behavioral economics and neuroeconomics are consistent with the
tenets of post-Kirznerian theory, but not with the old-fashioned neoclassical orthodoxy
of, for example, Paul Samuelson (1947) or Gérard Debreu (1959). These new develop-
ments represent the cutting edge and the future of economics. Examples of behavioral
economics include D. Kahneman and A. Tversky, ‘‘Prospect Theory: An Analysis of
Decision under Risk,’’ Econometrica 47, no. 2 (1979): 263–291; R. Thaler, The Winner’s
Curse: Paradoxes and Anomalies of Economic Life (New York: Free Press, 1992); and S.
Mullainathan and R. Thaler, ‘‘Behavioral Economics,’’ in International Encyclopedia of the
Social & Behavioral Sciences (Amsterdam: Pergamon Press, 2001). Examples of neuro-
economics include K. McCabe, ‘‘Neuroeconomics,’’ in Encyclopedia of Cognitive Science,
ed. L. Nadel (Nature Publishing, 2003); K. McCabe et al., ‘‘A Functional Imaging Study of
Cooperation in Two-Person Reciprocal Exchange,’’ Proceedings of the National Academy
of Sciences 98 (2001): 11832–11835; and C. Camerer et al., ‘‘Neuroeconomics: How
Neuroscience Can Inform Economics,’’ Journal of Economic Literature 43, no. 1 (2005): 9–
64. The most representative works of Samuelson and Debreu are probably P. A. Sam-
uelson, Foundations of Economic Analysis (Cambridge, MA: Harvard University Press,
1947) and G. Debreu, Theory of Value (New Haven: Yale University Press, 1959).
ENTREPRENEURIAL BEHAVIOR AS A HUMAN UNIVERSAL
15
17. E. Krecké et al., Cognition and Economics, vol. 9 of Advances in Austrian Economics
(Amsterdam: JAI, 2006); S. Rizzello, The Economics of the Mind (Cheltenham, UK: Ed-
ward Elgar, 1999); S. Rizzello, Cognitive Developments in Economics (London: Routledge,
2003); M. Egidi and S. Rizzello, Cognitive Economics (Cheltenham, UK: Edward Elgar,
2004); P. J. Boettke, ‘‘Interpretive Reasoning and the Study of Social Life,’’ Methodus:
Bulletin of the International Network for Economic Method 2, no. 2 (1990): 35–45; S.
Horwitz, ‘‘From The Sensory Order to the Liberal Order: Hayek’s Non-Rationalist Lib-
eralism,’’ Review of Austrian Economics 13, no. 1 (2000): 23–40.
18. L. Mises, Human Action: A Treatise on Economics (New Haven: Yale University
Press, 1949).
19. A. Aktipis and R. Kurzban, ‘‘Is Homo Economicus Extinct? Vernon Smith, Daniel
Kahneman and the Evolutionary Perspective,’’ in Evolutionary Psychology and Economic
Theory, vol. 7 of Advances in Austrian Economics, ed. R. Koppl (Amsterdam: JAI, 2004).
20. Op. cit., note 18, p. 3.
21. I. Kirzner, The Economic Point of View: An Essay in the History of Economic
Thought (Kansas City: Sheed and Ward, 1976).
22. Kirzner was a student of Mises. For an explanation of Mises’ role in shaping the
Austrian school, see R. Koppl and D. G. Whitman, ‘‘Rational-Choice Hermeneutics,’’
Journal of Economic Behavior and Organization 55, no. 3 (2004): 295–317.
23. I. Kirzner, The Economic Point of View (Kansans City: Sheed and Ward, 1976).
24. Scholarly work on entrepreneurship goes back at least as far as Richard Cantillon
who noted in 1755 that ‘‘the Beggars even and the Robbers are Undertakers,’’ that is,
entrepreneurs, who ‘‘may be regarded as living at uncertainty.’’ H. Higgs, trans. & ed.,
Essai sur la Nature du Commerce en Général (New York: Augustus M. Kelley, 1964), 55.
But a separate discipline of entrepreneurial studies did not exist until, perhaps, shortly
before the opening of the Center for Entrepreneurial Studies of Babson College in 1978.
The center is now called the Arthur M. Blank Center for Entrepreneurship.
25. R. Koppl and M. Minniti, ‘‘Market Processes and Entrepreneurial Studies,’’ in
Handbook of Entrepreneurial Research, eds. Z. J. Acs and D. B. Audretsch (Boston: Kluwer,
2003), 81.
26. S. Shane and S. Venkataraman, ‘‘The Promise of Entrepreneurship as a Field of
Research,’’ Academy of Management Review 25, no. 1 (2000): 217–226, p. 218.
27. W. Gartner, ‘‘What Are We Talking about When We Talk about Entrepreneur-
ship?’’ Journal of Business Venturing 5, no. 1 (1990): 15–28, p. 27, emphasis in original.
28. Gartner rightly criticizes the view, which has since lost currency, that entrepre-
neurship can be defined by some special psychological characteristics such as a need for
achievement. W. Gartner, ‘‘‘Who Is an Entrepreneur’ Is the Wrong Question,’’ Entre-
preneurship Theory and Practice 13, no. 4 (1989): 47–68.
29. Op. cit., note 26.
30. M. B. Low and I. C. MacMillan, ‘‘Entrepreneurship: Past Research and Future
Challenges,’’ Journal of Management 35 (1988): 139–161.
31. W. Gartner, ‘‘Is There an Elephant in Entrepreneurship? Blind Assumptions in
Theory Development,’’ Entrepreneurship Theory and Practice 25, no. 4 (2001): 27–39.
32. Op. cit., note 3, 1982, pp. 143–145.
33. Ibid., pp. 143–144.
34. Ibid., p. 150.
35. Ibid., pp. 156, 157.
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36. Ibid., p. 139.
37. The illustration is borrowed from Koppl and Minniti, op. cit., note 24.
38. Op. cit., note 3, 1982, p. 139.
39. Bergson’s point was explained and emphasized by O’Driscoll and Rizzo, who
noted that ‘‘the swelling of memory alone changes the perspective from which the world
is seen,’’ op. cit., note 14, p. 62. They explicitly follow Bergson in developing their concept
of ‘‘real time.’’ When Bergson described the flow of consciousness as ‘‘a river without
bottom and without banks,’’ he alluded to Heraclites’ remark, ‘‘One cannot step twice
into the same river, for the water into which you first stepped has flowed on.’’ H. Bergson,
Introduction to Metaphysics (New York: Wisdom Library, 1961); G. Davenport, trans. &
ed. Herakleitos and Diogenes (San Francisco: Grey Fox Press, 1979).
40. Sony Pictures, 1993.
41. I. Kirzner, The Economic Point of View (Kansans City: Sheed and Ward, 1976).
42. Op. cit., note 18, p. 254.
43. A Bayesian might object, arguing that one simply assigns prior probabilities and
that Bayesian logic identifies the uniquely rational way to update probabilities. This
response might have some force when we can list all possible contingencies, although
I will point to some limits to Bayesianism even in such cases. The Bayesian response we
have imagined has less force, however, when we cannot list all the possible outcomes in a
situation. The best one might do is to create a residual category containing ‘‘everything
else.’’ It is not clear, however, how one might assign a reliable or meaningful subjective
probability value to such a contingency. Even when this listing problem does not arise,
real people may not be able to calculate probabilities. Even values that are not difficult to
compute in any formal mathematical sense may be too much for real people. The notion
that Bayesian logic somehow saves probabilistic reasoning seems to be an expression of
faith and not a legitimate conclusion of analysis. On hard problems, see R. Axtell, ‘‘The
Complexity of Exchange,’’ The Economic Journal 115, no. 504 (2005): F193–F210.
44. D. Dequech, ‘‘The New Institutional Economics and the Theory of Behaviour
Under Uncertainty,’’ Journal of Economic Behavior and Organization 59, no. 1 (2006):
109–131.
45. Ibid., p. 112.
46. Op. cit., note 3, 1982, p. 147.
47. Ibid., p. 143.
48. Ibid., p. 144.
49. Ibid., p. 149, emphasis in original.
50. W. Butos and R. Koppl, ‘‘Confidence in Keynes and Hayek: Reply to Burczak,’’
Review of Political Economy 13, no. 1 (2001): 81–86, p. 84.
51. S. Sarasvathy, ‘‘Causation and Effectuation: Toward a Theoretical Shift from Eco-
nomic Inevitability to Entrepreneurial Contingency,’’ Academy of Management Review 26,
no. 2 (2001): 243–263.
52. I think Sarasvathy exaggerates when she says, ‘‘Effectual reasoning, however, does
not begin with a specific goal. Instead, it begins with a given set of means and allows goals
to emerge contingently over time from the varied imagination and diverse aspirations of
the founders and the people they interact with.’’ S. Sarasvathy, ‘‘What Makes Entrepre-
neurs Entrepreneurial?’’ manuscript, 2001, available at http://www.effectuation.org/ftp/
effectua.pdf. In this passage, which seems to follow the ideas of George Shackle, she says
entrepreneurs think of means first and ends second. The phenomenological analysis of
ENTREPRENEURIAL BEHAVIOR AS A HUMAN UNIVERSAL
17
Alfred Schutz reveals, however, that we imagine ends first, means second. I examine this
issue in some detail in R. Koppl, ‘‘Schutz and Shackle: Two Views of Choice,’’ Review of
Austrian Economics 14, no. 2/3 (2001): 181–191.
53. D. Harper, ‘‘New Approach to Modeling Endogenous Learning Processes in
Economic Theory,’’ Advances in Austrian Economics 1 (1994): 49–79; D. Harper, En-
terpreneurship and the Market Process: An Inquiry into the Growth of Knowledge (London:
Routledge, 1996); D. Harper, ‘‘Institutional Conditions for Entrepreneurship,’’ Advances
in Austrian Economics 5 (1998): 241–275.
54. R. Koppl and M. Minniti, ‘‘Market Processes and Entrepreneurial Studies,’’ in
Handbook of Entrepreneurial Research, eds. Z. J. Acs and D. B. Audretsch (Boston: Kluwer,
2003), 81; K. Popper, The Logic of Scientific Discovery (London: Routledge, 1977).
55. Ibid., pp. 93–94.
56. I do not believe that Sarasvathy intends to make such a suggestion. I think it is
easy, however, to enter into such a misapprehension.
57. Op. cit., note 54, pp. 90–91.
58. P. Boettke, ‘‘Economic Calculation: The Austrian Contribution to Political Econ-
omy,’’ Advances in Austrian Economics 5 (1998): 131–158.
59. Op. cit., note 4.
60. Ibid., pp. 449–450.
61. Op. cit., note 3, 1982, p. 155.
62. B. Gilad, ‘‘An Interdisciplinary Approach to Entrepreneurship: Locus of Control
and Alertness’’ (Ph.D. diss., New York University, 1981). Shane claims that in the Aus-
trian theory, entrepreneurial action ‘‘depends on factors other than people’s ability and
willingness to take action.’’ Op. cit., note 4, p. 450.
63. Op. cit., note 53.
64. F. A. Hayek, ‘‘Economics and Knowledge,’’ Economica, n.s. 4, no. 13 (1937): 33–54,
p. 44.
65. The central statement of the theory of evolutionary psychology is J. Barkow et al.,
eds., The Adapted Mind: Evolutionary Psychology and the Generation of Culture (New
York: Oxford University Press, 1992). A primer by L. Cosmides and J. Tooby can be
found at http://www.psych.ucsb.edu/research/cep/primer.html. The work of David Sloan
Wilson represents another tradition that might also be considered evolutionary psy-
chology. E. Sober and D. S. Wilson, Unto Others: The Evolution and Psychology of Un-
selfish Behavior (Cambridge, MA: Harvard University Press, 1998). I have given an
overview in which I distinguish evolutionary psychology in the strict sense from evolu-
tionary psychology in the broad sense. R. Koppl, ‘‘Economics Evolving: An Introduction
to the Volume,’’ in Evolutionary Psychology and Economic Theory, vol. 7 of Advances in
Austrian Economics, ed. R. Koppl (Amsterdam: JAI, 2004). Post-Kirznerian economists
value Hayek’s psychological work, The Sensory Order, which is an example of evolutionary
psychology in the broad sense. F. A. Hayek, The Sensory Order (Chicago: University of
Chicago Press, 1952). For a potentially useful resource on how to apply evolutionary
psychology to issues in social science, see R. Koppl, ed., Evolutionary Psychology and
Economic Theory, vol. 7 of Advances in Austrian Economics (Amsterdam: JAI, 2004).
66. Op. cit., McCabe, note 16.
67. This is the tradition of interpretive sociology. R. Koppl, Big Players and the
Economic Theory of Expectations (London: Palgrave Macmillan, 2002); P. Boettke and
R. Koppl, ‘‘Introduction,’’ Special Issue on Alfred Schütz Centennial, Review of Austrian
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