Learning about the unknown

how fast do entrepreneurs adjust their beliefs?

Research output: Contribution to journalArticle

101 Citations (Scopus)

Abstract

This paper seeks to measure the extent to which entrepreneurs adjust their beliefs in the light of new information, instead of relying on past experience to guide their decision making. We build a model in which entrepreneurs continually receive valuable but noisy market signals about the true but unobserved productivity of their effort, and use this information to update their expectations of unobserved productivity. The model is estimated using a sample of over 700 self-employed Britons interviewed in 1999 and 2000. It is found that on average, these individuals adjust their expectations of unobserved productivity in the light of new information by only 16%. This suggests that while entrepreneurs do exploit new information, they give much greater weight to their prior beliefs when forming their expectations. Also, there are no significant differences in terms of expectation formation between males and females, employers and non-employers, and experienced and less experienced entrepreneurs. However, younger entrepreneurs respond significantly more sensitively to new information than older entrepreneurs do, with adjustment rates of 21% compared with 14%, respectively. We go on to discuss some policy implications of these findings, and briefly discuss several features of entrepreneurship education programs that might help entrepreneurs improve this aspect of their business performance. (c) 2005 Elsevier Inc. All rights reserved.
Original languageEnglish
Pages (from-to)1-26
JournalJournal of Business Venturing
Volume21
Issue number1
DOIs
Publication statusPublished - Jan 2006
Event49th World Congress of the ICSB - Johannesburg, South Africa
Duration: 20 Jun 200423 Jun 2004

Fingerprint

Productivity
Information use
Education
Decision making
Entrepreneurs
Industry

Keywords

  • learning
  • entrepreneurs
  • labour supply
  • expectations
  • self-employment
  • strategic awareness
  • winners curse
  • time
  • performance model
  • allocation
  • business
  • growth
  • firms

Cite this

Learning about the unknown : how fast do entrepreneurs adjust their beliefs? / Parker, Simon.

In: Journal of Business Venturing, Vol. 21, No. 1, 01.2006, p. 1-26.

Research output: Contribution to journalArticle

@article{2dde7effa8394275a3499f0bbb54a04e,
title = "Learning about the unknown: how fast do entrepreneurs adjust their beliefs?",
abstract = "This paper seeks to measure the extent to which entrepreneurs adjust their beliefs in the light of new information, instead of relying on past experience to guide their decision making. We build a model in which entrepreneurs continually receive valuable but noisy market signals about the true but unobserved productivity of their effort, and use this information to update their expectations of unobserved productivity. The model is estimated using a sample of over 700 self-employed Britons interviewed in 1999 and 2000. It is found that on average, these individuals adjust their expectations of unobserved productivity in the light of new information by only 16{\%}. This suggests that while entrepreneurs do exploit new information, they give much greater weight to their prior beliefs when forming their expectations. Also, there are no significant differences in terms of expectation formation between males and females, employers and non-employers, and experienced and less experienced entrepreneurs. However, younger entrepreneurs respond significantly more sensitively to new information than older entrepreneurs do, with adjustment rates of 21{\%} compared with 14{\%}, respectively. We go on to discuss some policy implications of these findings, and briefly discuss several features of entrepreneurship education programs that might help entrepreneurs improve this aspect of their business performance. (c) 2005 Elsevier Inc. All rights reserved.",
keywords = "learning, entrepreneurs, labour supply, expectations, self-employment, strategic awareness, winners curse, time, performance model, allocation, business, growth, firms",
author = "Simon Parker",
year = "2006",
month = "1",
doi = "10.1016/j.jbusvent.2004.07.005",
language = "English",
volume = "21",
pages = "1--26",
journal = "Journal of Business Venturing",
issn = "0883-9026",
publisher = "Elsevier Science B. V.",
number = "1",

}

TY - JOUR

T1 - Learning about the unknown

T2 - how fast do entrepreneurs adjust their beliefs?

AU - Parker, Simon

PY - 2006/1

Y1 - 2006/1

N2 - This paper seeks to measure the extent to which entrepreneurs adjust their beliefs in the light of new information, instead of relying on past experience to guide their decision making. We build a model in which entrepreneurs continually receive valuable but noisy market signals about the true but unobserved productivity of their effort, and use this information to update their expectations of unobserved productivity. The model is estimated using a sample of over 700 self-employed Britons interviewed in 1999 and 2000. It is found that on average, these individuals adjust their expectations of unobserved productivity in the light of new information by only 16%. This suggests that while entrepreneurs do exploit new information, they give much greater weight to their prior beliefs when forming their expectations. Also, there are no significant differences in terms of expectation formation between males and females, employers and non-employers, and experienced and less experienced entrepreneurs. However, younger entrepreneurs respond significantly more sensitively to new information than older entrepreneurs do, with adjustment rates of 21% compared with 14%, respectively. We go on to discuss some policy implications of these findings, and briefly discuss several features of entrepreneurship education programs that might help entrepreneurs improve this aspect of their business performance. (c) 2005 Elsevier Inc. All rights reserved.

AB - This paper seeks to measure the extent to which entrepreneurs adjust their beliefs in the light of new information, instead of relying on past experience to guide their decision making. We build a model in which entrepreneurs continually receive valuable but noisy market signals about the true but unobserved productivity of their effort, and use this information to update their expectations of unobserved productivity. The model is estimated using a sample of over 700 self-employed Britons interviewed in 1999 and 2000. It is found that on average, these individuals adjust their expectations of unobserved productivity in the light of new information by only 16%. This suggests that while entrepreneurs do exploit new information, they give much greater weight to their prior beliefs when forming their expectations. Also, there are no significant differences in terms of expectation formation between males and females, employers and non-employers, and experienced and less experienced entrepreneurs. However, younger entrepreneurs respond significantly more sensitively to new information than older entrepreneurs do, with adjustment rates of 21% compared with 14%, respectively. We go on to discuss some policy implications of these findings, and briefly discuss several features of entrepreneurship education programs that might help entrepreneurs improve this aspect of their business performance. (c) 2005 Elsevier Inc. All rights reserved.

KW - learning

KW - entrepreneurs

KW - labour supply

KW - expectations

KW - self-employment

KW - strategic awareness

KW - winners curse

KW - time

KW - performance model

KW - allocation

KW - business

KW - growth

KW - firms

U2 - 10.1016/j.jbusvent.2004.07.005

DO - 10.1016/j.jbusvent.2004.07.005

M3 - Article

VL - 21

SP - 1

EP - 26

JO - Journal of Business Venturing

JF - Journal of Business Venturing

SN - 0883-9026

IS - 1

ER -