Risky decision-making essential to becoming an entrepreneur
13 November 2008
In an article in today's ‘Nature’, Professor Barbara Sahakian from the University of Cambridge argues that successful entrepreneurs make more risky decisions than their managerial counterparts. Professor Sahakian also believes that it may be possible to learn the type of decision-making essential to the entrepreneurial process or to enhance it in the future by pharmaceuticals.
Psychological and biomedical research has traditionally approached risk-taking as an abnormal expression of behaviour, as exemplified by its association with substance abuse and bipolar disorder. However, the Cambridge researchers, funded by the Wellcome Trust and the Medical Research Council, found that entrepreneurs show examples of highly adaptive risk-taking behaviour that can result in positive outcomes during stressful economic circumstances. This 'functional impulsivity' - the ability to make quick decisions under stress - may have evolutionary value as a means of seizing opportunities in a rapidly-changing environment.
Entrepreneurs choose to start their own business ventures rather than working within an existing company. While there is a potential for considerable profit in making the decision to 'go out on their own', these individuals accept the accompanying risks (to finances, reputation, family stability and even self-esteem), as many new ventures fail. Professor Sahakian and colleagues believe that it is these types of decisions that differentiate entrepreneurs from others.
To test their hypothesis, the scientists had 16 entrepreneurs from 'Silicon Fen' (the cluster of high-tech companies in and around Cambridge) and 17 managers complete a computerised neurocognitive assessment measuring various aspects of their decision-making abilities. Entrepreneurs and managers performed similarly on a decision-making task that required 'cold' processes (these processes govern real-life decisions such as when planning the opening of a consultancy company or hiring staff.)
The researchers then had the entrepreneurs and managers make 'hot' or risky decisions that involved evaluating rewarding versus punishing outcomes where it is too difficult for emotions not to play a role, such as the decision between financing one of several potentially excellent but risky business opportunities. On this test, although entrepreneurs and managers both made good decisions, entrepreneurs made significantly riskier decision. Entrepreneurs also showed superior cognitive flexibility and higher ratings on questionnaires that measure impulsivity. These cognitive processes are intimately linked to brain neurochemistry, particularly to the neurotransmitter dopamine.
"This study has shown that not all risk-taking is disadvantageous, particularly when combined with enhanced flexible problem solving," says Professor Sahakian. "In fact, risky or 'hot' decision-making is an essential part of the entrepreneurial process and may be possible to teach, particularly in young adults, where higher risk taking is likely and age-appropriate.
"Additionally, from previous studies we know that drugs can be used to manipulate dopamine levels, leading to changes in risky decision-making. Therefore, our findings also raise the question of whether one could enhance entrepreneurship pharmacologically."
Image: Wellcome Library