Cognitive Tension

Firm’s growth depends on the entrepreneur’s ability to sustain: expanding his/her capacity to recognize opportunities; exploring new business ideas that are inconsistent with his/her past beliefs; and a level of passion moderate enough to reduce overconfidence bias, yet intense enough to keep committed to pursue new opportunities.

 

Cognitive dynamics can make some entrepreneurs more alert to the opportunity than others. The illustrated diagram in figure 5 demonstrates how entrepreneurs build and expand capacity to recognize new opportunities. And how he/she can build biases that limits him/her from recognizing opportunities.

Passionate entrepreneurs strive to enhance their understanding of the environment to improve their ability of identifying profitable opportunities. When entrepreneurs encounter environmental changes that are inconsistent with their prior beliefs they challenge their assumptions about the industry, and their curiosity drive them to integrate the new knowledge with their previous beliefs. Once they processed the new input and updated their beliefs, they attain a richer theory about the industry and increase their capacity to explain wider range of business situations. This ultimately will lead to a better coherence between their beliefs and what they encounter in the industry and relief the tension they originally felt.

By enhancing their understanding entrepreneurs develop more effective prototypes for opportunities.  Consequently entrepreneurs become very skillful in scanning the environment and identifying profitable opportunities. However, efficient scanning of the environment comes at the cost of disregarding opportunities that do not match expectations. As the entrepreneurs develop more effective prototypes for the opportunity (s)he faces the risk of becoming less sensitive to information that is inconsistent with his beliefs. Eventually entrepreneurs may become myopic to radically new opportunities.