Intuitive optimizing for time allocation decisions in newly formed ventures

Moren Lévesque and Christian Schade

No 2002,24, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: This article investigates whether decision makers intuitively optimize close to the normative prediction in entrepreneurial decision situations where their time must be allocated between a wage job and a newly formed venture. We offer an analytical model based on maximizing expected utility, and derive an optimal time allocation strategy for decreasing, constant and increasing returns from time invested in the venture. The model's predictions are tested in a simple questionnaire experiment where respondents have to detect corner solutions, that is, they should allocate to the venture either the maximum or the minimum possible time. Respondents are found to allocate time relatively close to the normative predictions, although with systematic deviations that are consistent with well-known decision anomalies. Risk propensity is found to have an impact on the decisions, but it should not according to the model. Respondents appear to use an anchoring and adjustment procedure and are influenced by the so-called affect heuristic, which may explain why those who do not mathematically optimize have their decision partially driven by their risk propensity. Implications of our findings for entrepreneurs and institutions dealing with entrepreneurs are discussed.

Keywords: Decision Making; Intuitive Optimizing; Micro Economics Model; Time Allocation Strategy; Entrepreneurship; Questionnaire Experiment (search for similar items in EconPapers)
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/65335/1/726374229.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:200224

Access Statistics for this paper

More papers in SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().