Risk, Uncertainty and Entrepreneurship

Strategic entrepreneurial decisions are inherently risky as entrepreneurs rarely know all possible outcomes. If information on the consequences of decisions is incomplete, uncertainty involves risk. Perception of risk may differ. Risk is conceptualized based on individual entrepreneur’s assessment of risk and uncertainty in a decision. Perceived uncertainty and perceived risk along with industry dynamism drives the entrepreneurial decision making process.

Why do entrepreneurs engage in risk?

• Because of lack of necessary information in a decision situation
• Entrepreneurs develop an inside view of the decisions they face
• Ignore elements of past situations
• Favour positive possible outcomes

Entrepreneurs differ from corporate managers based on decision making factors like:

• Intuition
• Individualistic view
• High tolerance for ambiguity
• Confidence in skills, knowledge and expertise

To assess real risk and improve decision making:

• Apply multiple perspectives to a decision situation
• Integrate perspectives into the decision
• Use complex cognitive framework regarding a decision situation
• Broader and deeper view of the decision at hand may result in a more accurate assessment of risk

This blog post is based on my learnings from the course on ‘entrepreneurship’ offered by Maryland Technology Enterprise Institute, University of Maryland through Coursera (2014).