Psychological Theories

Psychological Theories of Entrepreneurship

Why do some people choose to start businesses while others do not? The psychological perspective shifts the focus from market forces to the human mind, examining the personality traits, cognitive frameworks, and motivations that drive entrepreneurial action.

[Image of Maslow's hierarchy of needs vs McClelland's theory]

1. Motivation and Drive (The "Why")

Theories explaining the internal engines that push individuals toward venture creation.

• Achievement Motivation Theory (McClelland): Suggests that entrepreneurs are distinct from the general population because they possess a high "Need for Achievement" (n-Ach)—a psychological drive to excel, solve problems, and master complex tasks.
• Expectancy Theory (Vroom): A process theory arguing that motivation is a calculation: Valence (do I want the reward?) × Expectancy (can I achieve the goal?) × Instrumentality (will the goal actually lead to the reward?).
• Passion Theory: Distinguishes between "Harmonious Passion" (healthy motivation) and "Obsessive Passion" (compulsive motivation) and how they fuel persistence.
• Self-Competition Theory: The notion that entrepreneurs are primarily motivated by a desire to surpass their own past performances rather than competing with others.

2. Cognitive Frameworks (The "How")

How entrepreneurs process information and make decisions differently.

• Theory of Planned Behavior (Ajzen): The dominant theory in academic research. It posits that "Entrepreneurial Intention" is the result of three factors: Attitude toward the act, Subjective Norms (social pressure), and Perceived Behavioral Control.

• Regulatory Focus Theory (Higgins): Suggests individuals operate in two modes: Promotion Focus (seeking gains and growth) or Prevention Focus (avoiding losses and seeking safety). Entrepreneurs typically skew heavily toward Promotion.
• Self-Efficacy Theory (Bandura): The belief in one's own capacity to execute behaviors necessary to produce specific performance attainments. High self-efficacy is a strong predictor of startup intention.
• Attribution Theory: Explains how entrepreneurs interpret success and failure. Founders tend to attribute success to internal factors (skill) and failure to external factors (luck/market), protecting their ego.
• Prospect Theory: A behavioral economic theory suggesting that when individuals feel they are "winning," they become risk-averse, but when "losing," they take irrational risks to break even.

3. Personality Traits

Inherent characteristics often associated with founders.

• Locus of Control Theory (Rotter): The degree to which people believe they have control over the outcome of events in their lives. Entrepreneurs typically have a high Internal Locus of Control.

• Ambiguity Tolerance Theory: The psychological ability to function effectively in uncertain, unstructured, or unpredictable environments without high stress.
• Impulsivity Theory: While often seen as negative, this theory argues that functional impulsivity allows entrepreneurs to seize fleeting opportunities before the "window" closes.

4. The "Dark Side" and Adversity

The controversial and negative psychological aspects of venturing.

• Hubris Theory: Extreme overconfidence. While it aids in resilience, it often leads to poor strategic decisions and the underestimation of resources required.
• Narcissism and Entrepreneurship: Examines how the need for admiration and lack of empathy can drive empire-building but destroy team cohesion.
• Addiction Theory: The concept that serial entrepreneurship operates on the same neurological reward loops (dopamine) as behavioral addictions (e.g., gambling).
• Childhood Adversity Theory: The "Displacement" hypothesis. Suggests that trauma or hardship in early life pushes individuals out of "normal" career paths and forces them to develop self-reliance, leading to entrepreneurship.

5. Fairness and Justice

• Procedural Justice Theory: Focuses on the fairness of decision-making processes. Entrepreneurs who are perceived as fair in *how* they allocate resources (even if the outcome is unequal) gain higher employee loyalty.