REFLECTIVE WRITING 1

Behavioral and Cognitive factors in Entrepreneurship: Entrepreneurs as the active element in New
Venture Creation (Baron, R.A. – 2007)
Presented by Vanlalthazuali
Entrepreneurs are the active element in new venture creation. Entrepreneurship happens when individuals
pursue the opportunities of developing new products/services through the creation of new venture, and thus
the actions of the entrepreneur play a crucial role in the entrepreneurial process.
As the title implies, this paper explores the effect of behavioral and cognitive factors in the key activities of
new venture creation. Besides this, the role of affect, which has not yet been systematically investigated in the
context of new venture creation is also explored.
Behavior is the way in which one conducts oneself (Merriam-Webster). It is the way you act/respond to
various situations. Cognition refers to a range of mental processes relating to the acquisition, storage,
manipulation, and retrieval of information (Cambridge Cognition). It is related to mental activities such as
reasoning, learning, decision-making, imagining, thinking, perception, language using, etc.
The author, together with the frameworks suggested by different researchers, came up with the three most
essential activities in the new venture creation process –
1) Generation of ideas
2) Recognizing opportunities
3) Acquisition of resources.
Although, there are lots of other important and significant activities performed by the entrepreneur, these three
are the most fundamental in the early phase of venture creation.
Effects of behavioral and cognitive factors on these key activities:
Generation of new ideas
Creativity is an integral part of idea generation. But where do such creative thinkings come from? Where do
such ideas originate? How do they take form in the minds of particular individuals?
One factor that offers important benefit in relation to creativity is concept. In cognitive psychology, concept
refers to the categories of things that are somewhat similar.
Concepts permit ready access to vast amounts of previously stored information and enable us to facilitate
processing such information in various ways. It also helps us in analyzing, sorting and processing the relevance
of the ideas that we have as quickly and as simply as possible.
Ideas can also be generated through the combination and expansion of concepts. When the concepts of
‘telephone’ and ‘camera’ were combined, the idea for cell-phones with built-in cameras emerged. Gas station
- a place which was only meant for purchasing fuel and automobile related services, expanded into a place
where you can obtain wide array of products, from food to clothing. Concepts can also be expanded by
analogy- perceiving the similarities between things that are otherwise dissimilar.
The basic cognitive processes of an individual allow him to use and operate on the information in new ways.
Recognizing Opportunities
Opportunities can either be created or identified, but in this paper, focus is on the identification of opportunities
rather than creating a new one.
Research evidences showed that information plays an important role in the individual’s capacity to recognize
opportunities. It appears that some people are more likely than others to recognize opportunities due to various
reasons including better access to information and superior ability to utilize available information effectively.
However, in this paper, focus is on a process that may provide the basic cognitive foundations for opportunity
recognition – pattern recognition.
Pattern recognition process involves noticing meaningful patterns in complex events, trends or changes. This
ability to notice is strongly influenced by the cognitive framework of an individual – the frameworks
developed on the basis of past experience. The clearer and more fully-developed these frameworks are, the
more likely that individuals who possess them to recognize opportunities in a specific domain, because these
cognitive frameworks serve as templates or guides, helping them to notice links between diverse events or
trends.

Acquiring Essential Resources

Another important activity in the creation of new venture is the acquisition of resources- human, financial and
information.
Entrepreneurs who possess well-developed social skills (e.g., social perception, social adaptability,
expressiveness, impression management) are able to interact, persuade and influence others more effectively
and gain more advantage in acquiring resources than others who are lower in these skills.
Similarly, social networks, social capital, having good reputation and being in good relationship with others
play important role in the acquisition of essential resources.

Affect in New Venture Creation:

Affect refers to relatively temporary and mild moods or feelings individuals experience throughout their daily
lives. And since entrepreneurs operate in a chaotic and unpredictable environment, they often experience
changes in current affect.
Affects can have both positive and negative influences in the entrepreneurial process.
Affect can encourage creativity and cognitive flexibility, enhances the ability to think original, helps in
acquisition of resources and decision-making and encourages cooperative action.
However, negative affect can encourage anger, intransigence and overt aggression. Both positive and negative
affect can have detrimental effects including the acceptance of the levels of risk, premature closure and
biasness.
The key research finding in the field of neuroeconomics showed that there are two distinct systems in the
human brain for processing information, namely, reason and affect/emotion. These two systems interact in
complex ways during problem-solving, decision-making and other cognitive processes. One finding showed
that the more activity in the emotion-processing region of the brain, the greater the likelihood that individuals
will act in a way that is contrary to their economic interests.
From such findings, it appears that affect/emotion can sometimes outweigh rational considerations in decision-
making and other cognitive processes.
Suggestions:
This paper encouraged future researcher to examine the potential role of affect in key aspects of new venture
creation and also suggested entrepreneurship researchers to broaden the working definition of ‘behavioral and
cognitive’ factors.