The Phantom Opportunity
Bridging the Gap Between Idea and Equity Investors
DOI:
https://doi.org/10.30800/mises.2019.v7.1221Keywords:
Entrepreneur, Opportunity, Discovery, Perception, ResourcesAbstract
Kirznerian entrepreneurs are described as alert individuals apt to identify opportunities through subjective inferences based on industry competition, price inequality, and interaction with other market actors. They are poised to identify and exploit opportunities that may not currently exist. We extend this notion of alertness towards the unknown by introducing the “phantom opportunity” concept, extending prior research. Although entrepreneurs may initially perceive a new venture idea, it cannot manifest itself as opportunity until other parties legitimize it by mutually perceiving it as such, thus committing resources. For example, investors may mentally simulate, contributively co-create or modify a proposed opportunity before committing the necessary funding to launch the entrepreneur’s perceived idea. This paper extends Kirzner’s view of perception and opportunity as related to the modern entrepreneurs’ struggle to define, legitimize and realize an opportunity.
Downloads
Metrics
References
ALVAREZ, S.A., BARNEY, J.B. Discovery and creation: alternative theories of entrepreneurial action. Strategic Entrepreneurship Journal, v. 1, n. 1-2, p. 11-26, 2007. DOI: https://doi.org/10.1002/sej.4
ALVAREZ, S.A., BARNEY, J.B., ANDERSON, P. Forming and Exploiting Opportunities: The Implications of Discovery and Creation Processes for Entrepreneurial and Organizational Research. Organization Science, v. 24, n. 1, p. 301-317, 2013. DOI: https://doi.org/10.1287/orsc.1110.0727
ANDERSON, C., GALINSKY, A.D. Power, optimism, and risk-taking. European Journal of Social Psychology, v. 36, n. 4, p. 511-536, 2006. DOI: https://doi.org/10.1002/ejsp.324
BECKERT, J. Imagined futures: fictional expectations in the economy. Theory and Society, v. 42, n. 3, p. 219-240, 2013. DOI: https://doi.org/10.1007/s11186-013-9191-2
BHATIA, N., GUNIA, B.C. “I was going to offer $10,000 but…”: The effects of phantom anchors in negotiation. Organizational Behavior and Human Decision Processes, v. 148, p. 70-86, 2018. DOI: https://doi.org/10.1016/j.obhdp.2018.06.003
BITEKTINE, A. Toward a Theory of Social Judgments of Organizations: The Case of Legitimacy, Reputation, and Status. Academy of Management Review, v. 36, n. 1, p. 151-179, 2011. DOI: https://doi.org/10.5465/amr.2009.0382
BOSTAPH, S. Driving the Market Process:" Alertness" Versus Innovation and "Creative Destruction". Quarterly Journal of Austrian Economics, v. 14, n. 4, p. 421, 2013.
BOYLE, E. The Rise of the Reluctant Entrepreneurs. International Small Business Journal: Researching Entrepreneurship, v. 12, n. 2, p. 63-69, 1994. DOI: https://doi.org/10.1177/0266242694122006
CLARKE, J. Revitalizing Entrepreneurship: How Visual Symbols are used in Entrepreneurial Performances. Journal of Management Studies, v. 48, n. 6, p. 1365-1391, 2011.
CLARKE, J.S., CORNELISSEN, J.P., HEALEY, M.P. Actions Speak Louder than Words: How Figurative Language and Gesturing in Entrepreneurial Pitches Influences Investment Judgments. Academy of Management Journal, v. 62, n. 2, p. 335-360, 2019. DOI: https://doi.org/10.5465/amj.2016.1008
COLYVAS, J.A., JONSSON, S. Ubiquity and Legitimacy: Disentangling Diffusion and Institutionalization. Sociological Theory, v. 29, n. 1, p. 27-53, 2011. DOI: https://doi.org/10.1111/j.1467-9558.2010.01386.x
CONLON, D., PINKLEY, R., SAWYER, J. Getting something out of nothing: Reaping or resisting the power of a phantom BATNA. In: AYOKO, OLUREMI, ASHKANASY, NEALJEHN, KAREN (Org.). Handbook of Conflict Management Research. Northhampton, MA: Edward Elgar Publishing, p. 328, 2014.
DALY, P., DAVY, D. Structural, linguistic and rhetorical features of the entrepreneurial pitch. Journal of Management Development, v. 35, n. 1, p. 120-132, 2016. DOI: https://doi.org/10.1108/JMD-05-2014-0049
DAVIDSSON, P. Entrepreneurial opportunities and the entrepreneurship nexus: A re-conceptualization. Journal of Business Venturing, v. 30, n. 5, p. 674-695, 2015. DOI: https://doi.org/10.1016/j.jbusvent.2015.01.002
DEMMERT, H., KLEIN, D.B. Experiment on entrepreneurial discovery: an attempt to demonstrate the conjecture of Hayek and Kirzner. Journal of Economic Behavior & Organization, v. 50, n. 3, p. 295-310, 2003. DOI: https://doi.org/10.1016/S0167-2681(02)00024-0
DENIS, D.J. Entrepreneurial finance: an overview of the issues and evidence. Journal of Corporate Finance, v. 10, n. 2, p. 301-326, 2004. DOI: https://doi.org/10.1016/S0929-1199(03)00059-2
DIMOV, D. Nascent Entrepreneurs and Venture Emergence: Opportunity Confidence, Human Capital, and Early Planning. Journal of Management Studies, v. 47, n. 6, p. 1123-1153, 2009.
ECKHARDT, J.T., SHANE, S.A. Opportunities and Entrepreneurship. Journal of Management, v. 29, n. 3, p. 333-349, 2003. DOI: https://doi.org/10.1177/014920630302900304
FARQUHAR, P.H., PRATKANIS, A.R. Decision Structuring with Phantom Alternatives. Management Science, v. 39, n. 10, p. 1214-1226, 1993.
FOSS, N.J., KLEIN, P.G. Alertness, Judgment, and the Antecedents of Entrepreneurship. SSRN Electronic Journal, 2010. DOI: https://doi.org/10.2139/ssrn.1579975
GAGLIO, C.M., KATZ, J. The psychological basis of opportunity identification: Entrepreneurial alertness. Small Business Economics, v. 16, n. 2, p. 95-111, 2001. DOI: https://doi.org/10.1023/A:1011132102464
GAGLIO, C.M. The Role of Mental Simulations and Counterfactual Thinking in the Opportunity Identification Process. Entrepreneurship Theory and Practice, v. 28, n. 6, p. 533-552, 2004. DOI: https://doi.org/10.1111/j.1540-6520.2004.00063.x
GIANIODIS, P., MARKMAN, G., ESPINA, M. To Invest Or Not To Invest: Understanding The Entrepreneur-Investor-Venture (Eiv) Nexus. Frontiers of Entrepreneurship Research, v. 37, n. 1, p. 2, 2017.
GUNTHER MCGRATH, R., NERKAR, A. Real options reasoning and a new look at the R&D investment strategies of pharmaceutical firms. Strategic Management Journal, v. 25, n. 1, p. 1-21, 2003.
HAYEK, F.A. Competition as a Discovery Procedure. In: [s.l.: s.n.], 1968.
HOLCOMBE, R. Entrepreneurship and Economic Growth. The Quarterly Journal of Austrian Economics, v. 1, n. 2, p. 45-62, 2019. DOI: https://doi.org/10.1007/s12113-998-1008-1
KIRZNER, I. The primacy of entrepreneurial discovery. In: The Prime Mover of Progress: The Entrepreneur in Capitalism, and Socialism-Papers on the Role of the Entrepreneur. London: Institute of Economic Affairs, p. 3-28, 1985.
KIRZNER, I. The subjectivism of Austrian economics. In: G. Meijer (Ed.), New perspectives on Austrian economics. London: Routledge, 1995.
KIRZNER, I. Entrepreneurial discovery and the competitive market process: An Austrian approach. Journal of Economic Literature, v. 35, n. 1, p. 60-85, 1997.
KIRZNER, I. The Alert and Creative Entrepreneur: A Clarification. SSRN Electronic Journal, 2008. DOI: https://doi.org/10.2139/ssrn.1224842
KLEIN, P.; BYLUND, P. The place of Austrian economics in contemporary entrepreneurship research. The Review of Austrian Economics, v. 27, n. 3, p. 259-279, 2014. DOI: https://doi.org/10.1007/s11138-014-0256-x
KORSGAARD, S. Entrepreneurship as translation: Understanding entrepreneurial opportunities through actor-network theory. Entrepreneurship & Regional Development, v. 23, n. 7-8, p. 661-680, 2011. DOI: https://doi.org/10.1080/08985626.2010.546432
KORSGAARD, S. et al. A Tale of Two Kirzners: Time, Uncertainty, and the “Nature” of Opportunities. Entrepreneurship Theory and Practice, v. 40, n. 4, p. 867-889, 2015. DOI: https://doi.org/10.1111/etap.12151
LAVOIE, D. The discovery and interpretation of profit opportunities: Culture and the Kirznerian entrepreneur. Culture and Economic Action, v. 48, 2015. DOI: https://doi.org/10.4337/9780857931733.00008
LERNER, J.; KELTNER, D. Fear, anger, and risk. Journal of Personality and Social Psychology, v. 81, n. 1, p. 146-159, 2001. DOI: https://doi.org/10.1037//0022-3514.81.1.146
MCGRATH, R. G. Options and the enterprise: Toward a strategic theory of entrepreneurial wealth creation. Academy of Management Proceedings, v. 1996, n. 1, p. 101-105, 1996.
MCGRATH, R. G.; NERKAR, A. Real options reasoning and a new look at the R&D investment strategies of pharmaceutical firms. Strategic Management Journal, v. 25, n. 1, p. 1-21, 2004. DOI: https://doi.org/10.1002/smj.358
MCMULLEN, J. S.; SHEPHERD, D. A. Entrepreneurial action and the role of uncertainty in the theory of the entrepreneur. Academy of Management Review, v. 31, n. 1, p. 132-152, 2006. DOI: https://doi.org/10.5465/amr.2006.19379628
MITCHELL, R. K. et al. The central question in entrepreneurial cognition research 2007. Entrepreneurship Theory and Practice, v. 31, n. 1, p. 1-27, 2007. DOI: https://doi.org/10.1111/j.1540-6520.2007.00161.x
NAGY, B. G. et al. The influence of entrepreneurs’ credentials and impression management behaviors on perceptions of new venture legitimacy. Entrepreneurship Theory and Practice, v. 36, n. 5, p. 941-965, 2012. DOI: https://doi.org/10.1111/j.1540-6520.2012.00539.x
PINKLEY, R. L. The effect of perception on judgments about “fair” compensation: Implications for negotiators as price justifiers. In: The Psychology of Negotiations in the 21st Century Workplace, p. 111-150. London: Routledge, 2012.
PINKLEY, R. L. et al. Unpacking BATNA availability: How probability can impact power in negotiation. Academy of Management Proceedings, v. 2017, n. 1, p. 16888, 2017.
POLLACK, J. M.; RUTHERFORD, M. W.; NAGY, B. G. Preparedness and cognitive legitimacy as antecedents of new venture funding in televised business pitches. Entrepreneurship Theory and Practice, v. 36, n. 5, p. 915-939, 2012. DOI: https://doi.org/10.1111/j.1540-6520.2012.00531.x
PRATKANIS, A. R.; FARQUHAR, P. H. A brief history of research on phantom alternatives: Evidence for seven empirical generalizations about phantoms. Basic and Applied Social Psychology, v. 13, n. 1, p. 103-122, 1992. DOI: https://doi.org/10.1207/s15324834basp1301_9
PURTELL, C.; CASTON, M.; GRUMBLES, L. Phantom Opportunity. ARP Working Paper, Oklahoma State University, Working Paper, 2019. DOI: https://doi.org/10.30800/mises.2019.v7.1221
RAMOGLOU, S.; TSANG, E. W. A realist perspective of entrepreneurship: Opportunities as propensities. Academy of Management Review, v. 41, n. 3, p. 410-434, 2016. DOI: https://doi.org/10.5465/amr.2014.0281
RENKO, M.; SHRADER, R. C.; SIMON, M. Perception of entrepreneurial opportunity: a general framework. Management Decision, v. 50, n. 7, p. 1233-1251, 2012.
RITA, G. M. A real options logic for initiating technology positioning investments. Academy of Management Review, v. 22, n. 4, p. 974-996, 1997. doi:10.2307/259251 DOI: https://doi.org/10.2307/259251
RITA, G. M. Falling forward: Real options reasoning and entrepreneurial failure. Academy of Management Review, v. 24, n. 1, p. 13-30, 1999. doi:10.2307/259034 DOI: https://doi.org/10.2307/259034
ROESE, N. J. Counterfactual thinking. Psychological Bulletin, v. 121, n. 1, p. 133. 1997. DOI: https://doi.org/10.1037//0033-2909.121.1.133
ROESE, N. J.; EPSTUDE, K. The functional theory of counterfactual thinking: New evidence, new challenges, new insights. In: Advances in Experimental Social Psychology, v. 56, p. 1-79. New York: Academic Press, 2017.
RUTHERFORD, M. W. et al. Proposing a financial legitimacy threshold in emerging ventures: A multi-method investigation. Group & Organization Management, v. 41, n. 6, p. 751-785, 2016. DOI: https://doi.org/10.1177/1059601116669632
SCHAERER, M.; SCHWEINSBERG, M.; SWAAB, R. I. Imaginary alternatives: The effects of mental simulation on powerless negotiators. Journal of Personality and Social Psychology, 2018 DOI: https://doi.org/10.1037/pspi0000129
SCHUMPETER, J. A. Capitalism, Socialism, and Democracy. New York: Harpers and Brothers Publishers, 3rd Ed., 1950.
SCHUMPETER, J.A. The Theory of Economic Development. London: Transaction Publishers, 1934.
SHANE, S. A. A General Theory of Entrepreneurship: The Individual-Opportunity Nexus. Cheltenham: Edward Elgar Publishing, 2003. DOI: https://doi.org/10.4337/9781781007990
SHANE, S. Prior knowledge and the discovery of entrepreneurial opportunities. Organization Science, v. 11, n. 4, p. 448-469, 2000. DOI: https://doi.org/10.1287/orsc.11.4.448.14602
SHANE, S.; VENKATARAMAN, S. The promise of entrepreneurship as a field of research. Academy of Management Review, v. 25, n. 1, p. 217-226, 2000. DOI: https://doi.org/10.5465/amr.2000.2791611
SHEPHERD, D.A.; ZACHARAKIS, A. A new venture’s cognitive legitimacy: An assessment by customers. Journal of Small Business Management, v. 41, n. 2, p. 148-167, 2003. DOI: https://doi.org/10.1111/1540-627X.00073
SHORT, J.C. et al. The concept of “opportunity” in entrepreneurship research: Past accomplishments and future challenges. Journal of Management, v. 36, n. 1, p. 40-65, 2010. DOI: https://doi.org/10.1177/0149206309342746
SUCHMAN, M. C. Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, v. 20, n. 3, p. 571-610, 1995. DOI: https://doi.org/10.5465/amr.1995.9508080331
TAYLOR, T. C. An Introduction to Austrian Economics. Auburn, AL: Ludwig von Mises Institute, 2008 [1980].
VON MISES, L. Human Action: A Treatise on Economics. New Haven: Yale University Press, 1949.
VON MISES, L. The Theory of Money and Credit. Trad. H. E. Batson. New Haven: Yale University Press, 1953 [1924].
YU, T. F. L. Entrepreneurial alertness and discovery. The Review of Austrian Economics, v. 14, n. 1, p. 47-63, 2001. DOI: https://doi.org/10.1023/A:1007855505727
ZACHARAKIS, A. L.; MEYER, G. D.; DECASTRO, J. Differing perceptions of new venture failure: a matched exploratory study of venture capitalists and entrepreneurs. Journal of Small Business Management, v. 37, n. 3, p. 1, 1999.
ZIMMERMAN, M.; ZEITZ, G. Beyond survival: Achieving new venture growth by building legitimacy. Academy of Management Review, v. 27, n. 3, p. 414-431, 2002. doi:10.2307/4134387 DOI: https://doi.org/10.2307/4134387
ZOTT, C.; HUY, Q. N. How entrepreneurs use symbolic management to acquire resources. Administrative Science Quarterly, v. 52, n. 1, p. 70-105, 2007. DOI: https://doi.org/10.2189/asqu.52.1.70
