Aspirations, Prospect Theory and entrepreneurship: evidence from Colombia

In this article, we test the main hypotheses of the behavioral theory of entrepreneurship, namely that risk preferences are reference dependent, that entrepreneurs are not ambiguity averse and that aspirations act as a reference point in the sense postulated by Prospect Theory. We use an experimental methodology to elicit risk preferences, and we manipulate aspirations by means of a psychological priming technique to guarantee exogenous variation of the independent variable. We also assess the relationship between risk preferences and correlates at the firm and individual level. Although causality cannot be established, as expected the risk preferences are mainly related with individual characteristics. If we look at the relationship between biases and firm performance, we see some effect of loss aversion in interaction with personality traits (locus of control) and level of risk propensity. Our experimental fieldwork has been conducted in Colombia.