What is the expectancy theory of entrepreneurship?
Expectancy theory was developed to explain work motivation and organizational behavior (Kanfer, 1990). It has since been used to explain additional behaviors, including entry into entrepreneurship.
Expectancy theory starts with the concept of motivational forces that Vroom (1964) expressed as an equation:
MF = V x I x E,
where V = valence, I = instrumentality, and E = expectancy.
Valence refers to the value that an individual places on the outcome of their efforts—such as the importance of financial rewards. Instrumentality refers to the belief that if an individual meets performance expectations, that they will actually receive the reward. Expectancy is the belief or probability that an individual’s effort will result in the desired goal being achieved. Since the equation involves multiplication, it implies that if any one of the parts is zero then the motivational forces equal zero.
Valance depends upon the individual’s desire for material rewards or the psychic rewards of influence, ownership, power or getting things done. Expectancy is based on past experiences and feedback from others. Instrumentality may be influenced by the environment; for instance, where taxation is prohibitively high, the individual may believe that their venture, even if successful, will not yield sufficient monetary rewards.
Applied to the entrepreneurial context, an individual will have the motivational force to enter into entrepreneurship as a career path if they value the profits of entrepreneurship, believe that they can start a business, and believe that if they start a business, that the business will yield profits (see Renko et al., 2012). If any of these three components are not present in an individual’s beliefs, then they will not start a business.
Kanfer, R. (1990). Motivation theory and industrial and organizational psychology. Handbook of industrial and organizational psychology, 1(2), 75-130.
Renko, M., Kroeck, K. G., and Bullough, A. (2012). Expectancy theory and nascent entrepreneurship. Small Business Economics, 39(3), 667-684.
Vroom, V. 1963. Work and Motivation. New York, NY: Wiley.