Enterprise and Small Business Principles

Cognitive models of entrepreneurial behaviour

There is a need for an individual-level understanding of the processes leading to entre­preneurial behaviour that has not been met by studies of individual traits. Research, as stated earlier, has evolved towards more integrated and complex models that take into account not only psychological characteristics of entrepreneurs but also situational variables and personal background (e. g. age, sex). These models can be divided in two groups depending on their focus. As they are models of human behaviour they tend to overlap, but they tend to focus on different theoretical explanations of human behaviour.

The first group is mainly interested in how our attitudes to entrepreneurship (i. e. starting a business or expanding a business) shape our behaviour. This group is labelled attitude-based models. The second group is concerned with motivation in achievement contexts. That is, why do individuals engage and behave in situations where they have to compete with others and therefore risk failure? This group is labelled achievement - context models.

8.6.1 Attitude-based models

Attitude is one of the major concepts in motivation theories. An attitude is a valuation of an object or a concept, i. e. to what extent an object or concept is judged as good or bad (Eagly and Chaiken, 1993). In psychological language, traits such as ‘Locus of Control’ or ‘Over-Optimism’ are distal, i. e. weak determinants of specific behaviours. Attitudes, on the other hand, are proximal, i. e. more specific, and because of their spe­cificity they are considered to be important determinants of behaviour. Furthermore, attitudes are interesting because of their applied relevance. It is believed that attitudes have an impact on behaviour. It is therefore interesting to understand how attitudes can be changed. Consequently, the impact of attitudes on entrepreneurial behaviour is worthy of closer examination because they are supposed to have a directive influence on behaviour and they are much easier to change than personality and other more distal traits or characteristics. This would mean that if the attitudes characterising entre­preneurs starting a new business were known, other people could be influenced to adopt these attitudes and, as a result, increase the number of people starting a business.

The drawbacks concern how well attitudes actually predict behaviours and explain when or why a specific action is engaged in. The importance of attitudes in predicting behaviour has been most debated, but recent research has now shown that attitudes can predict behaviour if certain conditions are met (Bagozzi and Warshaw, 1992; Doll and Ajzen, 1992; Kim and Hunter, 1993). Attitudes are tendencies or dispositions to behave in a generally favourable or unfavourable way towards the object of the atti­tude. For example, this means that it is difficult to say if a person will start a business because their attitudes are positive to the act of starting a business. It is only known that this person will act in a way that is in accordance with their attitudes. In this example, it means that this person will behave favourably to everything that is connected with business start-ups such as encouraging a friend or relative to start a business, finance a start-up effort, or even to individually establish their own business. A shortcoming of attitude theories is that they give no information about how an individual’s evaluation of a concept is translated into action and outcomes. Differently stated, attitude theories help us understand how choices are made and why, but they give little guidance about the chosen level of effort and persistence (Locke, 1991).

Nevertheless, the advantages override the disadvantages. The possibility to closely examine attitudes towards different facets of entrepreneurship and the ability to easily communicate the results to a wider audience (such as policy makers) are strong argu­ments. Furthermore, even if attitudes are not perfect predictors of behaviours, they are still much better than distal personality characteristics. As a consequence, attitude theories have received a fair share of attention within the field of entrepreneurship. Two attitude concepts have been predominantly researched, namely attitudes to becoming self-employed or starting a business and attitudes to business growth. The research around these concepts is either based on formal attitude theory or on finding simple relationships among attitudes and the concept. The most used model is Ajzen’s (1991) Theory of Planned Behaviour or adapted versions of it. Researchers such as Krueger and colleagues (Krueger and Brazeal, 1994; Krueger and Carsrud, 1993) have proposed the theory as a possible venue for explaining entrepreneurial behaviour, and especially the engagement in the start-up of a business.

The purpose of the theory of planned behaviour is to explain behaviour when actions are not under complete behavioural control. That is, when actions are dependent on something or someone else beyond one’s control. Starting a business is an example of where actions are dependent on necessary resources and knowing the right people. The basic assumption is that people carefully assess the information they have about the behaviour and form beliefs about it, and then try to act in accordance with these beliefs or attitudes. The theory postulates that the tendency to engage in a particular behaviour is determined by the individual’s intention to do so. Thus, behavioural intentions mediate the effect of attitudes on behaviour (Ajzen, 1995). This means that people will start a business if:

■ they have enough information to form an opinion,

■ the opinion is favourable to the behaviour of starting a business,

■ they have the intention to start a business.

Thus, behaviour is determined directly by one’s intention to act, and intention in turn is influenced by attitudes. This is the first factor of the theory of planned behaviour.

The second factor is subjective or social norms which, in combination with attitudes towards the behaviour, determine intention and consequently actual behaviour. Social norms as a concept are defined as the perceived social pressure (what other things the individual should do) to perform or not to perform the behaviour (Bagozzi and Kimmel, 1995). To continue the business start-up example, this means that a person will only try to start a business if they feel that people around them encourage or support that kind of behaviour.

However, these two factors (attitudes and subjective norms) are by themselves not enough to explain why people engage in specific behaviour when it is not under full behavioural control. Hence, a third factor is introduced in order to predict intentions and behaviour, namely perceived behavioural control. This is a concept of central importance in explaining entrepreneurial behaviour and is defined as the perceived ease or difficulty of performing the behaviour. Furthermore, it is supposed to reflect anticipated problems and obstacles as well as past experiences. Assuming somewhat favourable subjective norms and attitudes to a behaviour, a person’s intention to per­form the behaviour will increase with perceived behavioural control. Furthermore, if perceived behavioural control is in accordance with actual behavioural control, this can help to predict the likelihood that intentions will be realised into behaviour (Ajzen, 1991, 1995).

How does this theory then help further to understand entrepreneurial intentions? First of all it is a theory taking into account the complexity of human behaviour and it points out a central wisdom: ‘You are not born an entrepreneur, you are made an entrepreneur.’ That is, attitude models such as the theory of planned behaviour give us valuable instruments to understand how to change people’s feelings and beliefs towards entrepreneurship, and consequently create a more supportive environment to entrepreneurship. Thus, the theory of planned behaviour is often referred to in entre­preneurship research, but few have actually tested the model. Most research is only based on measurement between the three different factors (attitudes, subjective norms and perceived behavioural control) and intentions. The link between intentions and actual behaviour is still a black box. Nevertheless, valuable results have been produced.

Whether business start-ups (Davidsson, 1995; Kolvereid, 1996a, 1996b; Krueger, 1993) or growth (Davidsson, 1989b; Kolvereid, 1992; Kolvereid and Bullvag, 1996; Wiklund, 1998; Wiklund et al., 2003) are examined, the same results tend to be repeated. First, attitudes have by themselves little ability to predict the intention to expand a busi­ness or to start one. Second, subjective norms have an even weaker predictive power. What others believe or feel is important does not particularly affect the entrepreneur’s intentions. However, what is important and stands out as the strongest predictor is perceived behavioural control. In other words, people in general are rather positive towards entrepreneurship (starting or expanding a business), which means that per­ceived behavioural control does not discriminate very well between those that engage in a particular behaviour and those that are just favourable. What stands out instead is whether people feel that entrepreneurship is a feasible option for themselves. In other words, a person will try to start a business if they believe that they can do it in terms of having the ability and knowledge required to carry out the behaviour. Thus, per­ceived behavioural control or perceived feasibility is the key component to explain when a person will engage in entrepreneurial behaviour. Davidsson (1995) studied intentions to start a business in Sweden and found that men and women differed little in their attitudes, but women were low on perceived behavioural control. This could then explain why women are under-represented among entrepreneurs. They do not have enough confidence in their own ability and in know-how to start and operate a business, and therefore they abstain from doing so (see Chapter 9 for a more detailed discussion of gender).

To sum up, research on attitudes and entrepreneurship has yielded consistent find­ings. A number of studies found that perceived behavioural control was the single most important predictor of intentions. Both attitudes and subjective norms played a relatively minor role. However, attitude models, such as the theory of planned behaviour, offer little information on how and why certain behaviour is chosen by an individual.

8.6.2 Cognitive motivation models and entrepreneurship

The next section will review two cognitive motivation models of human behaviour and how they have been applied to the field of entrepreneurship. The common denomina­tor of these models and the one presented in this section is the search for control. That is, individuals try to organise their lives in ways that give the level of perceived control. However, the following two models go a step further by incorporating moods and emo­tions in their structure. The theory of planned behaviour is concerned with preferences (what is and what is not important) rather than emotions (what we find enjoyable, boring or stressful to do), and human behaviour is dictated to a large extent by our moods and feelings. Furthermore, these models deal with both behaviour and actual performance and are therefore referred to as achievement-contexts models.

Perceived self-efficacy

The chapter has already concluded that perceived behavioural control is an important determinant of entrepreneurial behaviour. A closely related concept is the concept of perceived self-efficacy. It is a concept ‘concerned with people’s beliefs about their cap­abilities to produce performances that influence events affecting their lives’ (Bandura, 1995:434). In other words, it is about a person’s beliefs in their capabilities to mobilise the motivation, cognitive resources and courses of actions needed to control events in their life. Hence, it is concerned with how individuals’ beliefs about their own capabil­ities shape the perceived control of their levels of functioning and over the events of their lives. A person’s beliefs in their efficacy influence the decisions they make, their level of aspirations, how much effort is mobilised in a given situation, how long they persist at the task in the face of difficulties and setbacks, and whether their thought patterns are self-hindering or self-aiding.

Perceived self-efficacy has been proposed as a central concept in entrepreneurship (Boyd and Vozikis, 1994) because it is proximal in nature and has been proven to be asso­ciated with initiating and persisting in achievement-related behaviours such as business settings (Wood and Bandura, 1989). The perceived self-efficacy of entrepreneurs has been proven to affect the strategies and performance of their businesses (Westerberg, 1998), and it was found that entrepreneurs high in perceived self-efficacy in general achieved a higher performance for their firms than those low in perceived self-efficacy. Performance was measured here as profitability, customer satisfaction and ability to survive. Perceived self-efficacy is also positively related to the intention of starting one’s own business and exploring new opportunities (Chen et al., 1998; Krueger and Dickson, 1993; Krueger and Dickson, 1994).

The roots of self-efficacy can be traced back to the concept of locus of control dis­cussed earlier although there is one large difference. Whilst an individual’s self-efficacy depends on the situation, locus of control can be seen as generalised self-efficacy. In other words, self-efficacy is closely related to a situation or to an object, which means that we can have high self-efficacy in one situation and low self-efficacy in another. For example, individuals may perceive themselves as highly capable rock climbers, but with low capabilities in business matters, even if the two situations involve considerable risk taking.

Furthermore, perceived self-efficacy is part of a larger theory called social cognitive theory of self-regulation (Bandura, 1986, 1991; Wood and Bandura, 1989). The aim of this theory is to explain goal-directed behaviour and it assumes that most behavi­ours have a purpose regulated by forethought. More precisely, individuals tend to form beliefs about what they can do, they anticipate the likely consequences of prospective actions, they set goals for themselves, and plan courses of action that are likely to pro­duce the desired outcome. In this theory, perceived self-efficacy is one of the most cent­ral mechanisms as it is the key to understanding how individuals function when setting goals and carrying out the actions needed to fulfil them. In comparison with the theory of planned behaviour (which focuses on predicting behaviour), it is more relevant to explain the functioning of perceived control and its effect on both behaviour and performance.

On the one hand, people with a high level of self-efficacy (i. e. with high assurance in their capabilities) approach difficult tasks as challenges to be mastered rather than issues to be avoided. They set themselves challenging goals and maintain strong com­mitment to them. They are persistent even in the face of failure and they maintain an analytical distance that guides effective performance. They also tend to attribute fail­ure to insufficient effort and poor knowledge. On the other hand, people with a low level of self-efficacy shy away from difficult tasks which are perceived as personal threats. They have a low level of aspirations and commitment to the goals they have chosen to pursue, do not maintain any analytical focus, and they give up easily. Failure is attri­buted to external obstacles and personal deficiencies. As a consequence they rapidly lose faith in their own capabilities. A personal level of self-efficacy is often the result of previous successful or unsuccessful experience (both personal experience or by observing role models). Therefore, self-efficacy has the tendency to be a pattern of a positive or negative circle - success breeds success and failure breeds failure. In other words, if one has observed successful entrepreneurs or has personal positive experience there is a high probability that one might engage in the same behaviour again and be suc­cessful in it again. In the same manner, a person with low self-efficacy will not engage in a specific behaviour, and if that person still engages in this behaviour they stand a high probability of failure. However, a negative pattern due to low self-efficacy can be broken and self-efficacy enhanced through proper training (Bandura, 1986; Westerberg, 1998).

To conclude, self-efficacy is related to perceived behavioural control, but the present concept focuses more on the actual functioning of perceived capabilities. The role of self-efficacy has been researched within the field of entrepreneurship and received sup­port. That is, how beliefs in one’s capabilities to mobilise the motivation, cognitive resources and courses of actions needed to control events in life (such as starting and managing a business) affect our behaviour and subsequent performance. Self-efficacy is a proximal concept and closely related to a person’s feelings towards a behaviour. This means that self-efficacy is malleable and (as with the rest of the cognitive models) it means that self-efficacy can be enhanced through proper training. The training and development of cognitive resources such as self-efficacy will be discussed separately when the impact of cognitive models on our understanding of entrepreneurial behavi­our is summarised. The next model is also linked to the relationship between motiva­tion, behaviour and performance, and focuses specifically on one of the positive effects of high self-efficacy: the feeling of intrinsic motivation.

Intrinsic motivation

Intrinsic motivation is closely connected to or even equated with interest and enjoy­ment. Intrinsic motivation is often determined as an action engaged in for its own sake, contrary to extrinsic motivation where external motivators play a central role to motiv­ate behaviour (e. g. acting to get a reward and not because the task itself is attractive) (Amabile et al., 1994; Deci, 1992b). In other words, intrinsically motivated behaviours are ones for which there is no apparent reward except for the activity itself. On the other hand, extrinsically motivated behaviours refer to behaviours where an external controlling variable can be readily identified by the persons acting. People focusing more on behaviours for their extrinsic benefits tend to perform worse than those who focus on behaviours for their intrinsic benefits. Compared with perceived self-efficacy which focuses on one’s representation of capabilities and control of behaviour, theo­ries of intrinsic motivation focus on one’s representation of what one finds enjoyable (and self-fulfilling) and on control of behaviour. However, these are different sides of the same coin, and Bandura (1991, 1995) himself points out that intrinsic motivation is both an antecedent and a consequence of high self-efficacy.

Theories about intrinsic motivation or task interests have the capacity to integrate attitudes, goals and emotions. Interest is closely connected to the emotion of enjoyment and it is an important factor in achievement settings. Attitudes differ from interests, where the latter refers to what the individual likes/dislikes and the former to what the individual finds important/unimportant. Thus, certain events can be considered import­ant but not interesting, and vice versa. Together, attitudes and interests can be assumed to form a set of preferences that guides our choices between different alternatives in decision making. Preferences are used when, through rank-ordering, assessments are made of the alternatives in choice situations. Interests, attitudes and preferences there­fore reflect the emotional value of the cognitive representations of reality.

Interest functions primarily as an important positive emotion motivating cognitive and motor search, and exploratory behaviour, and is a significant determinant of selec­tive attention and hence of the contents of perception and cognition. It not only deter­mines the choices made, but also the intensity and strength of an experience. The direction of interest is highly personal and varies widely between different individuals. It probably has its background in personal development and is linked to an inborn ability and sensitivity and the possibilities and support given by the environment. Interest is a function of challenge and ability, which in its turn determines what is a moderately difficult challenge. It is therefore important that the challenge can stimu­late an activity where the individual has a good chance of success but is not certain to succeed. Interest is also a prerequisite condition to a really creative contribution, as creativity on a high level demands great devotion to a certain kind of activity that one may be unwilling to undertake if one does not feel a great interest for the activity (Csikszentmihalyi, 1992; Izard, 1984).

Tasks or job interests have been shown to predict entrepreneurial behaviour (meas­ured as business growth and profitability) and how it is manifested (Delmar, 1996). Interest plays a central role in entrepreneurial behaviour as it is closely connected to central entrepreneurial concepts such as achievement, autonomy and creation. Interest can also be assumed to be central to the entrepreneurial process, since an entrepreneur has, in some sense, to be interested in (or attracted to) some aspect of entrepreneur­ship. The entrepreneur’s interests are important because they are related to which goals are chosen and how much effort will be expended in order to achieve them.

The relation between goal setting and interest and enjoyment is based on the fact that, when people are engaged in interesting activities, they often have goals for what they want to accomplish (Elliot and Harackiewicz, 1994; Epstein and Harackiewicz, 1992; Harackiewicz and Elliot, 1993). For example, an entrepreneur might start a business to expand into a larger business, find a pleasurable professional activity or escape unemployment. An entrepreneur may generate such goals on their own or the goals may be implicit in a particular situation. An achievement-orientated entrepreneur may strive to expand the venture in any situation or the situation itself may be struc­tured to elicit achievement situations (e. g. in a highly competitive industry such as the computer hardware industry). These goals could also be influenced by other people, as family, friends or capital providers try to prompt the adoption of particular goals for performance. What is important is that when the entrepreneur’s personal interests coincide with business goals such as expansion, they become more effective and suc­cessful in operating the business.

To sum up, the emotion of interest and its effect on entrepreneurial behaviour have been discussed. It was found that an entrepreneur’s task interest (i. e. what kind of task they most enjoy doing) affected the development of the business measured in terms of profitability and growth. Entrepreneurs are more interested in marketing-related ques­tions, are more growth oriented and had more profitable businesses. The explana­tion is that interest is a significant determinant of selective attention and hence of the contents of perception and cognition. Thus, when the entrepreneur’s interests coincide with achievement goals such as business profitability and growth, they will have an easier and more enjoyable time, and behave in a way that results in higher performance compared with entrepreneurs not interested in the same goals. In short, interest leads to higher attention, better decision making and a feeling of enjoyment. As we have seen earlier in this chapter the interaction between motivations such as interest will affect both creativity and the development of cognitive abilities such as successful intelligence (Sternberg, 2004; Sternberg and Lubart, 1996).

8.6.3 Summing up cognitive models

This section has reviewed three different cognitive models or concepts (attitude models, perceived self-efficacy and intrinsic motivation) that have greatly enhanced our under­standing of entrepreneurial behaviour. The theoretical value of cognitive models is that they offer a sophisticated theoretical frame of reference that incorporates the com­plexity of entrepreneurial behaviour and enables the actual test of the model. They are, in nature, more proximal than the more distal traits or personality characteristics. This leads to higher explanatory power as we have to understand what really is at the core of entrepreneurial behaviour. For example, Baron and Markman (2003) investigated the social competence (the ability to interact effectively with others based on discrete social skills) of entrepreneurs. Based on a sample of 230 entrepreneurs taken from both the cosmetics and the high-technology industries, they found that the accuracy of perceiving others (e. g. their traits, intentions and behaviour) was positively associated with financial success. Furthermore, they found that social adaptability (the ability to adapt or feel comfortable in a wide range of social situations) was important for entre­preneurs in the cosmetics industry, and expressiveness (the ability to express oneself clearly to generate enthusiasm in others) was important for entrepreneurs in the high - technology industries. This research indicates the importance of understanding situ­ational constraints, that skills are developed over time, and that proximal measures are likely to generate important results in understanding the psychology of the entrepreneur. Finally, research can offer better explanations of how entrepreneurs behave because we are focusing on their cognition, i. e. how we organise and come to understand the information around us. This also leads to a number of practical consequences.

By focusing on how people think and react more than on who they are, there has been a shift in focus from stable traits that are not easily changeable to more easily changeable cognitive processes. Thus the practical value of this research is that there is an understanding of how entrepreneurs become who they are and this knowledge can be used to educate and train potential entrepreneurs. That is, in order to create an envir­onment where more businesses are created and expanded we need to have favourable attitudes and feelings towards the object. However, what leads to actual behaviour is the individual’s feeling of control and that they enjoy what they are doing. More pre­cisely, an individual will engage in an entrepreneurial act if they believe they know how to do it and that behaviour is intrinsically rewarding. This knowledge and feeling can, according to Bandura (1995), be obtained in four different ways:

■ by mastery experiences - personal experience

■ by vicarious experiences - experience by observing others

■ by social persuasion

■ by reducing negative emotions towards the behaviour.

Mastery of experience is the most effective way of accomplishing a high feeling of con­trol. The reason is that personal experience offers the authentic evidence that one can master what it takes to succeed. Successes tend to build a strong belief in one’s per­sonal capabilities and failures tend to undermine it, especially before a strong sense of one’s capabilities have been rooted. The second way of creating and enhancing beliefs of capability and control is through vicarious experiences, for example observing role models. Seeing people similar to oneself succeed by sustained effort raises an individual’s beliefs about his capabilities; observing others fail despite high effort lowers an indi­vidual’s beliefs about his capabilities. For the experience to be effective, it is important that the individual can identify with the role model. A third, but less effective, way than the two previous ones is through social persuasion (i. e. convincing people that they have what it takes to succeed). The last way of modifying people’s feeling of con­trol towards a specific behaviour is to reduce the negative emotions such as stress and anxiety. The reason is that people rely to a large extent on their somatic and emotional state (such as having a gut feeling, nervousness or fatigue) in judging their capab­ilities. As a result, negative feelings are interpreted as having low capabilities.

Hence, it can be concluded that cognitive models such as the one presented here have several advantages compared with previous trait-based models. Instead of talking about a set of non-changeable traits, cognitive functions that can be altered should be discussed. Cognitive models have both a greater power to explain entrepreneurial behaviour and offer practical advice on how to train and educate future entrepreneurs.

8.5 Chapter summary

In attempting to present a review of research on entrepreneurial personality and behaviour this chapter has been divided into three major parts. The first part covered the development of the field until the present, while the second part examined the early research related to traits and personality characteristics that have dominated the field for a long time. Due to the inability to explain entrepreneurial behaviour, early research was abandoned in favour of more complex models that take into account the situation and the person’s perception of the situation, known as cognitive models.

The development of the field from individual trait theories to cognitive models also represents a shift in how entrepreneurial behaviour can be understood and how know­ledge can be utilised. Traits are supposedly stable over time, and can only offer grounds for selection of potential entrepreneurs. Cognitive models (such as those reviewed here) conceive human behaviour as directed by goals and motivation and perception of control. As a consequence, their practical value is that they are better at explaining entrepreneurial behaviour and can create instruments to better educate and train poten­tial entrepreneurs.

However, the careful reader will notice that relatively little research has been achieved using models based on cognitive theories. There have been several conceptual papers advocating cognitive theories, but little empirical research has actually been carried out where different models have been systematically tested. Hence, much more work is still needed to fully understand the complexity of entrepreneurial behaviour.