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Using a dual system of reasoning in small businesses: Entrepreneurial decisions and subjective risk intelligence

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Abstract

This study aims at introducing subjective risk intelligence (SRI) in the context of small businesses to analyze how both rationality and intuition may influence the entrepreneurial decision-making process, particularly in affecting firms’ financial equilibrium.

SRI aggregates four dimensions: two positive attitudes (imaginative capability and problem-solving self-efficacy) and two detrimental ones (emotional stress vulnerability and negative attitude towards uncertainty). In particular, we argue that imaginative capability and emotional stress vulnerability refer to Kahneman’s System 1 (the intuitive), while problem-solving self-efficacy and negative attitude towards uncertainty appertain to System 2 (the rational).

We conducted an empirical investigation collecting data from an ad hoc survey administered to owners and managers of small businesses and their balance sheets over 2013–2017. After testing the proposed constructs’ reliability, we tested the influence that both Systems 1 and 2 have on SMEs’ financial structure through a pooled OLS regression estimator.

Results show that the intuitive and the rational components of risk intelligence affect entrepreneurs’ decision-making differently. The rational component seems to stimulate the entrepreneurial orientation to risk tolerance. The intuitive component limits the entrepreneurial propensity to take financial risks due to the desire for stability attached to this cognitive process. Accordingly, we highlight the importance of enhancing a balance between the two systems of thinking. Practical implications suggest that entrepreneurs with a dominant attitude towards problem-solving self-efficacy, or a positive attitude towards uncertainty, should invest in developing imaginative capabilities or emotional control, and vice versa.

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Notes

  1. The 2013–2017 time span referred to most recent available data at the time of the survey (2019).

  2. We targeted the entire population without adopting a stratified sampling approach because, in anticipation of the possible high share of non-responses, we wanted to avoid the risk of having zero observations in many strata, in particular with regard to geographical location (regions) or different industries.

  3. The disparity between population size and sample size is thus entirely due to the number of non-response units and of incomplete questionnaires.

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Authors and Affiliations

  1. Faculty of Economics and Law, Kore University of Enna, Cittadella Universitaria, 94100, Enna, Italy

    Mariano Puglisi, Vincenzo Fasone, Giulio Pedrini, Deborah Gervasi & Guglielmo Faldetta

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  1. Mariano Puglisi
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  2. Vincenzo Fasone
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  3. Giulio Pedrini
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Appendix A

Appendix A

Table A1 “Risk Intelligence Scale”

RISK INTELLIGENCE SCALE

 

Dimension

Strongly

disagree

Slightly

agree

Moderately agree

Agree

Strongly agree

1. I am able to identify positive solutions to problems

Problem Solving Self-Efficacy

1

2

3

4

5

2. The uncertainty about possible developments of a situation paralyzes me

Negative Attitude Towards Uncertainty

1

2

3

4

5

3. To be able to create new procedures, I think for myself instead of following procedures established by others

Imaginative Capability

1

2

3

4

5

4. Totally new situations scare me

Negative Attitude Towards Uncertainty

1

2

3

4

5

5. Fear is my first reaction when there is an unforeseen problem

Negative Attitude Towards Uncertainty

1

2

3

4

5

6. I feel able to make decisions even when I don’t have all the information

Problem Solving Self-Efficacy

1

2

3

4

5

7. New projects cause me to have new ideas

Imaginative Capability

1

2

3

4

5

8. When I am thinking about a new project, I am able to propose different points of view

Imaginative Capability

1

2

3

4

5

9. When I face a problem, I am able to rapidly find an interpretation

Problem Solving Self-Efficacy

1

2

3

4

5

10. I have original ideas compared to others

Imaginative Capability

1

2

3

4

5

11. I do all right, even in unexpected circumstances

Problem Solving Self-Efficacy

1

2

3

4

5

12. I am full of ideas

Imaginative Capability

1

2

3

4

5

13. With a new project, I look for untraditional approaches

Imaginative Capability

1

2

3

4

5

14. I tend to be discouraged when there are accidents

Negative Attitude Towards Uncertainty

1

2

3

4

5

15. I am able to find new solutions when I am facing a problem

Imaginative Capability

1

2

3

4

5

16. I am afraid of change

Negative Attitude Towards Uncertainty

1

2

3

4

5

17. I am capable of finding solutions to problems myself

Problem Solving Self-Efficacy

1

2

3

4

5

18. When I feel fearful about something, I have difficulty concentrating on everything

Emotional Stress Vulnerability

1

2

3

4

5

19. My mental state affects my work/school performance

Emotional Stress Vulnerability

1

2

3

4

5

20. When I am in a bad mood, I have difficulty doing everything

Emotional Stress Vulnerability

1

2

3

4

5

21. I am sure about my abilities

Problem Solving Self-Efficacy

1

2

3

4

5

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Puglisi, M., Fasone, V., Pedrini, G. et al. Using a dual system of reasoning in small businesses: Entrepreneurial decisions and subjective risk intelligence. Int Entrep Manag J 18, 529–553 (2022). https://doi.org/10.1007/s11365-021-00762-6

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