Why might novice entrepreneurs accept increased risk by becoming portfolio entrepreneurs?

Abstract

The present research explored the relationship between loss aversion, based on prospect theory, and the diversification decision resulting in portfolio entrepreneurship. Specifically, where an entrepreneur is currently operating one small business, and is presented with the opportunity to simultaneously operate a second small business, do the tenets of prospect theory have an observable and significant effect on that decision? Further, the present research suggests an entrepreneur's individual characteristics will moderate the effect of loss aversion on the diversification decision; specifically, four aspects of human capital: General human capital, specific human capital, psychic income and switching costs. To that end, the present research conducted a survey-based, conjoint experiment with a sample pool of entrepreneurs. Having conducted the experiment, data was analyzed in an effort to observe the effects of loss aversion on the diversification decision as well as moderating effects of the entrepreneurial human capital on loss aversion.