Internet Finance

In: Business and Management

Submitted By hixiu
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Chapter 2

A Behavioral Finance Approach to Decision
Making in Entrepreneurial Finance
Rassoul Yazdipour

By ‘uncertain’ knowledge, let me explain,… We simply do not know.
J.M. Keynes (1937)
Humans have an additional capability that allows them to alter their environment as well as respond to it. This capacity both creates and reduces risk.
Paul Slovic (1987)
All risk that is acted upon must be perceived risk because perception is based upon sensory data. We can only sense the
‘real world’ because we have no other way of being informed.
Robert Olsen (2010)
Understanding a problem is half of the solution
Unknown

Abstract Three central decisions in entrepreneurship and entrepreneurial finance – entry/seed funding, financing/investment, and growth/exit – are discussed and case is made for applying the behavioral finance theories and concepts to better understand the involved decision processes, and consequently, to help improve the decisionmaking process for both entrepreneurs and venture capitalists. The behavioral finance approach is important because the traditional finance has remained silent on the first issue, and the Agency Theory (financial contracting), which is effectively the only theory that is applicable to issues in entrepreneurial finance, has produced mixed empirical results. (See for example Bitler et al. [Bitler MP, Moskowitz T J, VissingJorgensen A (2009) Why do entrepreneurs hold large ownership shares? Testing agency theory using entrepreneur effort and wealth. Working Paper. Graduate School of Business, University of Chicago].) Attempts are also made in this chapter to
R. Yazdipour (*)
California State University, Fresno, CA, USA and The Academy of Entrepreneurial Finance, Los Angeles, CA, USA e-mail: ryazdipour@aoef.org
R. Yazdipour, Advances in Entrepreneurial Finance: With Applications from Behavioral Finance…...

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