Judge Business School research concludes aRisky decision-making essential to entrepreneurialism’

Psychological and biomedical research has traditionally considered risk-taking as an abnormal expression of behaviour, as exemplified by its association with substance abuse and bipolar disorder. However, the Cambridge research, which was funded by the Wellcome Trust and the Medical Research Council, found that entrepreneurs represent an example of highly adaptive risk-taking behaviour which can result in positive outcomes during stressful economic circumstances. This afunctional impulsivitya, the ability to make quick decisions under stress, may have evolutionary value as a means of seizing opportunities in a rapidly-changing environment.

To test their hypothesis, the scientists had 16 entrepreneurs from aSilicon Fena (the cluster of high-tech companies in and around Cambridge) and 17 managers complete a computerised neurocognitive assessment measuring various aspects of their decision-making abilities. On a decision-making task that required acolda processes, entrepreneurs and managers performed similarly. (aColda processes govern real-life decisions such as when planning the opening of a consulting company or hiring staff.)

The researchers then had the entrepreneurs and managers make ahota or risky decisions which involved evaluating rewarding versus punishing outcomes. (For example, the decision between financing one of several potentially excellent but risky business opportunities is a hot decision a it is too difficult for emotions not to play a role.) On this test, although entrepreneurs and managers both made good quality decisions, entrepreneurs were significantly riskier. Entrepreneurs also showed superior cognitive flexibility and higher ratings on questionnaires which measure impulsivity. These cognitive processes are intimately linked to brain neurochemistry, particularly to the neurotransmitter dopamine.

Professor Barbara Sahakian, lead author of the study, said, aThis study has shown that not all risk-taking is disadvantageous, particularly when combined with enhanced flexible problem solving. In fact, risky or ahota decision-making is an essential part of the entrepreneurial process and may be possible to teach, particularly in young adults where higher risk taking is likely and age-appropriate.