Evaluation of Entrepreneurial Risk-Taking using Magnitude of Loss Scale

Abstract

The importance of risk-taking in business ventures has been emphasised by many. Attempts to distinguish entrepreneurs on their risk-taking propensity have produced conflicting results. Data on two measures of risk-taking propensity were collected from entrepreneurs, prospective entrepreneurs and non-entrepreneur others. While the groups did not differ significantly on risk-taking propensity as measured by the Choice Dilemma Questionnaire, entrepreneurs and prospective entrepreneurs differed significantly from others on the Magnitude of Loss Questionnaire. Similarly, entrepreneurial aspirants differed significantly from the nonentrepreneur group. These results highlight the significance of loss, an important aspect in risk-taking, which is often ignored in entrepreneurial and managerial studies. The riskiness in business ventures which has been the main stumbling block for many is not the low probability of success but the high stakes involved in entrepreneurship.

Aspects of entrepreneurial success

“…Research also reports this often results in great stress on the entrepreneur and small business owners, caused by factors such as loneliness, concentration in business, problems with people, health problems and the continual need to achieve (Akande, 1992;Boyd and Gumpert, 1983;Buttner, 1992). The risk-taking propensity of entrepreneurs has been fairly widely-studied over many years (Hull et al, 1980;Kamalanabhan et al, 2006;Knight, 1971;Palmer, 1971), but generally has resulted in conflicting findings and is not usually researched as a potentially negative factor of entrepreneurship as a career choice. Despite the literature on entrepreneurial personalities, stress, and reasons for small business failure (Rogoff et al, 2004), overall there is far less exploration and research regarding the general disadvantages of entrepreneurship than there is on advantages and advice to new entrepreneurs.…”

Entrepreneurial Competencies

“…Chandra (1991) has found that risktaking alone could not differentiate between successful and unsuccessful entrepreneurs. Earlier research indicates conflict between studies showing entrepreneurs exhibiting 'moderate risk-taking propensity' and the widely held belief that entrepreneurship involves 'high risk-taking propensity' (Kamalanabhan et al, 2006). The absence of a consensus in the literature regarding the risk-taking propensity of entrepreneurs does not negate the rich conceptual discussions involving risk-taking propensity (Stewart Jr. et al, 1999).…”

Impact of collaborative, entrepreneurship education on the financial risk taken by university students

“…Various constructs have been developed to evaluate risktaking propensity, anchored in theories like the Everyday Risk Inventory Scale (Steketee and Frost, 1994), the Sensation Seeking Scale (Zuckerman, 2009), the Tension Risk Adventure Inventory (Keinan et al, 1984), and the Risk Propensity Scale (Meertens and Lion, 2008). We note that while some researchers propose risk-taking propensity as a multidimensional construct (Caird, 1989;Kogan and Wallach, 1964), it is mostly considered to be unidimensional (Kamalanabhan et al, 2006). The most commonly used scales are based on the idea that a person with high risk-taking propensity would tend to choose an option with a smaller probability of success but higher utility, as evidenced by the Choice Dilemma Questionnaire (Kogan and Wallach, 1964) and the five choices of Schneider and Lopes (1986).…”

“…In these questionnaires, participants are given choices of gaining less money with certainty against gaining more money with reduced probabilities. On the other hand, Kamalanabhan et al (2006) developed a Magnitude of Loss Questionnaire based on the opposing idea that risk-taking is related to the size of the loss involved in a venture.…”