Opportunity evaluation in teams: A social cognitive model

Abstract

Research on opportunity evaluation is flourishing but we know little about how teams evaluate opportunities rather than individuals. Conceptualizing opportunity evaluation as a collective process, we develop an agent-based model to investigate how the social cognitive mechanisms of team formation affect the ability of entrepreneurial teams to choose good opportunities and forgo bad ones. We find that opportunity evaluation decisions depend on the cognitive status of the lead entrepreneurs who found the team and the team formation strategy they use, i.e., whether they select team members based on interpersonal similarity (i.e., cognitive homophily) or complementary knowledge (i.e., cognitive heterophily). Moreover, we show that learning moderates the effects of team formation on opportunity evaluation. Overall, our work provides a new view of opportunity evaluation as a dynamic social process contingent upon entrepreneurs' networks and team founders' characteristics and their choices of who to turn for judgments of an opportunity's potential.