Source of Information and Entrepreneurial Performance Expectations : Experience-Based Versus Description-Based Opportunity Evaluations

We explore how the source of information used by entrepreneurs during the pre-entry stage, be it experiential or descriptive information, affects entrepreneurs’ performance expectations. Because judgments from experience diverge from judgments based on descriptions, especially when prospects include a rare event, we argue that entrepreneurs’ expectations of success (i.e., the focal rare event) are affected by the source of information used by entrepreneurs. We contend that industry conditions determine how rare success is, and therefore interacts with the source of information to further shape expectations. In two studies, we find that experience generates lower expectations than descriptions when industry conditions are unfavorable (e.g., success is rare), and this pattern reverses when industry conditions are favorable (e.g., success is more likely). These findings shed light on entrepreneurial learning, and contribute to understanding how the informational environment in which entrepreneurs operate during the nascent stage shapes their mental representation of business opportunities