Risk Propensity

Sitkin and Pablo (1992) offer definitions critical to this trait perspective: risk propensity as the tendency to take or avoid risk: risk perception as the assessment of risk inherent in a situation: risk behavior as decisions with varying degrees of uncertainty. They propose two, alternative models of risk behavior. One suggests that risk propensity and risk perception mediate risk behavior (1992,p. 15). The other suggests a moderated relationship, explicitly, that risk propensity moderates the relationship between risk perception and risk behavior (1992, p. 26). Sitkin and Weingart (1995) test the mediated model and report promising results. However, the debate is not closed. Mediation is suggested when there is a demonstrably strong relationship between predictor and criterion (Baron and Kenny, 1986), and empirical results in this domain are mixed (Busenitz and Barney, 1997; Sitkin and Weingart, 1995). In a study that examines the relationships between anticipated venture outcomes and differences in risk propensities, Forlani and Mullins (2000), find that risk propensities did not influence perceptions of venture risk. That empirical result directly contradicts the Sitkin and Pablo (1992) prediction.

Risk taking propensity has limited implications for the discovery and exploitation of wealth generating ideas. Brockhaus (1980) studies entrepreneurs and managers with a view toward assessing risk taking propensity. He finds no significant differences across these groups. Masters and Meier(1988) extend this research. They use the same instrument (the Choice Dilemma Questionnaire, hereafter, CDQ) and ask essentially the same question: Do entrepreneurs differ in their risk taking propensity from non-entrepreneurs? They report no significant differences between entrepreneurs and managers. This empirical evidence on risk propensity runs counter to conventional wisdom and suggests that entrepreneurs exhibit the same propensity to take or avoid risks as the general population. However, other scholars are not as sanguine. Shaver and Scott (1991) critique the CDQ as inappropriate for this research question. The instrument was developed to study individuation, the diffusion of responsibility often found in mob behavior. Moreover, it was designed to measure changes in expressed levels of riskiness. Consequently, Shaver and Scott assert that its use as an index of a relatively stable personality trait is methodologically unsound (1991, p. 29). Sitkin and Pablo (1992) extend the discussion of risk taking propensity, and we take advantage of their indirect support for our competing, theoretical perspective. They argue that risk taking propensity has three determinants: risk preferences, a somewhat durable predisposition to accept or decline risk; inertia, a habituation of sorts in which the decision maker employs processes and criteria used in past situations; outcome history, a phenomenon in which the decision maker attributes outcomes to his or her actions. Further, they propose that risk propensity may be a moderator variable, explicitly, that it influences the relationship between risk assessment and risk behavior (1992. p. 26). We seize upon their conceptualization of risk propensity as a moderator and substitute ‘‘priors.’’ Priors are information gained by decision makers from prior immersion in a similar context (Venkatraman, 1997).

Brandstatter (2010) stated that, during the last two decades entrepreneurship has become a very active field of research in various social science and economic policy.

 Janny & Dess (2006) attempted to summarize the literature on risk in three dimensions:

1. Risk as variance.
2. Risk as downside loss.
3. Risk as opportunity.

Sitkin & Weingart (1995) describe risk perception as, “The decision maker’s evaluation of the level of risk inherent in a situation, associated with its uncertainty and the control that individuals perceive they have over such uncertainty”.

It is argued that in order to increase risk perception, risk identification needs to increase.

Norton & Moore (2002) summaries previous literatures and upcoming researches on entrepreneurs in quite simple way “entrepreneurs hold a dissenting view of the future which often permits the discovery of arbitrage opportunities overlooked by others. In the field of entrepreneurship there have been a huge number of researches looking at the opportunity recognition element of entrepreneurship.

In the field of research many studies had been done on entrepreneurial risk and their assessment abilities and opportunities so far, now question arise here whether these entrepreneurs are born or made their distinguishing factors, personalities and attitudes and source of their relentless drive and their different creativity have been topics of many studies, researches undertaking around the world. (Pieter Ernst 2012).