The New Institutional Economics tradition emphasizes that institutions enable and constrain entrepreneurial action. Meanwhile, entrepreneurs are known to alter or evade existing rules. Surprisingly little is known about why entrepreneurs are sometimes constrained and other times enabled by the institutional rules of the game. We argue that this is because prior work has treated institutions as “given” constraints that are commonly understood by entrepreneurs. Building on construal level theory, we provide a model in which entrepreneurs subjectively interpret the nature and enforcement of political and social rules. The entrepreneur’s institutional distance, or relative proximity to the political process, informs how they construe the rules of the game—facilitating different types of entrepreneurial action. In our model, low institutional distance enables pragmatic action and superior navigation of the existing institutional environment. By contrast, high institutional distance enables divergent thinking and superior deviation from existing institutions, yielding disruptive change. After presenting the model, we briefly discuss how our work enriches the literature on the political economy of technological change. Our work changes the way we think about the entrepreneurial-institutional interface, illuminating how the heterogeneity of entrepreneurial perceptions of the institutional environment yields patterns of rule-breaking and rule-shaping entrepreneurial action.