Entrepreneurship Requires the Eyes and Ears of a Wolf

Entrepreneurship is a popular occupational choice for Generation X and Y who desire more freedom to determine their own fate. When conversing with young people you will hear their stories of how they would like to someday be a business owner, work in an industry they have a passion for and keep their freedom. If you want to be an entrepreneur than having the eyes and ears of a wolf will help you discover opportunities.

Opportunities abound but seeing potential opportunities can be a more difficult process. It takes considerable experience to see and understand where price differences occur and how to capitalize on these differences. Sometimes these opportunities are easy to discern while at other times considerable research must be conducted before it can be realized

Consider the years and efforts it takes to successfully run a small business. Most businesses fail within the first five years as wishful thinking meets market realities. As entrepreneurs stick with their efforts they begin to learn the differences between success and failure. Learning can lead to big successes in the future if practically applied.

If you read books on entrepreneurship you will find that the process is failure is very similar for each person. They tried and failed a number of times before becoming successful. At the end of this long battle with themselves and the market they eventually figured out what works. It takes time to forge an approach through trial and error.

Being an entrepreneurial wolf requires the ability to see opportunities and find ways to turn those opportunities into realized profit. Keeping your eyes and ears open throughout your daily activities will help you realize how things work. Sometimes the best businesses are built off of simple ideas and concepts. Perceiving a single profitable action can lead to the repeating of that action.

Decision making: Likelihood over Rewards

Seeking the best possible outcome.

People make decisions every day of their life. Some of these decisions are rational while others appear to be more irrational. Understanding the evaluative processes of such decision-making helps business leaders better grasp the choices people make between the probability of a positive outcome and higher levels of reward. Research helps show the risk aversive state of normal decision-making as people seek to gain higher likelihood of positive outcome over higher potential rewards.

Decision making can be defined by a number of important key parameters that include probability of an outcome, the size of an outcome, and the variance of an outcome (Christopoulos, et. al., 2009). When making a decision people try and understand the likelihood that they will achieve a certain outcome, the potential value of that outcome and the uncertainty of that outcome. If there is a high likelihood that the object will be obtained, this object is of great value, and there is low variability in the possibility of this outcome then there will be higher levels of motivation to act.

Expected value theory posits that people decide rationally by understanding the objective worth of choices by calculating the expected value of a reward times its probability of its outcome (Milstein & Dorris, 2007). In other words, people will look at the total value of a reward times its likelihood of occurring. An outcome worth a million dollars that has a 50% chance of occurring is worth more than a million dollars with a one in ten chance of occurring.

Prospect theory makes the argument that decisions are made on the basis of perceived value, perceived magnitude, and perceived probability of reward (Kahneman, 1979). This perception changes with the person and the values also change depending on how something is perceived. Each person would evaluate their prospects differently based upon their perceptions of worth. Each person and their potential for rational and irrational decisions are variable and highly subjective

Research conducted by Sharp, Viswanathan, Lanyon and Barton (2012) attempts to evaluate economic decision making under risk and ambiguity. The two theoretical constructs under study focused on decision-making using expected value theory and the other irrational choices under prospect theory. Subjects needed to choose between two prospects varying in size and probability in order to maximize their gains. On each trial the value of the prospects were varied to make a spectrum of choices. Nineteen healthy participants engaged in the study.

Subjects choose between higher probability of gain or higher value obtainment. The results indicate the following:

-Subjects had a preference for higher probability of gain over the value of the gain.

-Subjects had a hard time evaluating small differences in value.

-Subjects were risk aversive.

-Subjects had a tendency to favor higher probability over higher reward.

The research helps highlight the differences of choices subjects make by varying degrees of probability and reward. When confronted between higher levels of probability of a positive outcome or higher rewards, the subjects had a preference for the higher probability of a positive outcome. People naturally chose the safer route than those routes with the highest magnitude but the least chance of a desirable outcome. Understanding these findings can help organizational leaders put within perspective the value of offering higher levels of security over higher rewards in the average adult population.

Christopoulos G., Tobler P., Bossaerts P, Dolan R. & Schultz W (2009) Neural correlates of value, risk, and risk aversion contributing to decision making under risk. J Neurosci 29: 12574–12583.

Kahneman D, Tversky A (1979) Prospect theory: an analysis of decision under risk. conometrica 47: 263–291.

Milstein DM, Dorris MC (2007) The Influence of Expected Value on Saccadic Preparation. J Neurosci 27: 4810–4818.

Sharp ME, Viswanathan J, Lanyon L., Barton J. (2012) Sensitivity and Bias in Decision-Making under Risk: Evaluating the Perception of Reward, Its Probability and Value. PLoS ONE, 7(4)




Bookmark with Your Social Network