Persist or let it go: Do rational entrepreneurs make decisions rationally?

Abstract

We theorize that both highly rational entrepreneurs and entrepreneurs with a high need for cognitive closure (NFCC) are likely to put more emphasis on retrospective factors (period and degree of underperformance, personal investments) and less on prospective factors (risk of going into default, potential for growth, personal options) when deciding whether to persist with an underperforming venture. Our findings from three discrete choice experiments with three independent samples of entrepreneurs (a sample of 176 Australian entrepreneurs; a narrow-replication with 128 Australian entrepreneurs; and a quasi-replication with 157 United Kingdom entrepreneurs) consistently show that entrepreneurs who perceive themselves as rational do not always demonstrate rational behavior and entrepreneurs with a high NFCC put more emphasis on retrospective factors in persistence decisions. Important theoretical and practical contributions flowing from our study are shared in the concluding section.