2015/07/16 by Laura Huang, Jone L. Pearce · 458 citations
Business, Management and Accounting · Economics, Econometrics and Finance · Psychology · #Behavioral economics #Economics #Entrepreneurship #Entrepreneurship Studies and Influences #Finance #Financial Markets and Investment Strategies #Intuition #Investment decisions #Microeconomics #Positive economics #Private Equity and Venture Capital #Psychology
paper · doi:10.1177/0001839215597270
published in Administrative Science Quarterly 60(4), 634-670 (SAGE Publishing)
openalex publication_date 2015/07/16 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Using an inductive theory-development study, a field experiment, and a longitudinal field test, we examine early-stage entrepreneurial investment decision making under conditions of extreme uncertainty. Building on existing literature on decision making and risk in organizations, intuition, and theories of entrepreneurial financing, we test the effectiveness of angel investors’ criteria for making investment decisions. We found that angel investors’ decisions have several characteristics that have not been adequately captured in existing theory: angel investors have clear objectives—risking small stakes to find extraordinarily profitable investments, fully expecting to lose their entire investment in most cases—and they rely on a combination of expertise-based intuition and formal analysis in which intuition trumps analysis, contrary to reports in other investment contexts. We also found that their reported emphasis on assessments of the entrepreneur accurately predicts extraordinarily profitable venture success four years later. We develop this theory by examining situations in which uncertainty is so extreme that it qualifies as unknowable, using the term “gut feel” to describe their dynamic emotion-cognitions in which they blend analysis and intuition in ways that do not impair intuitive processes and that effectively predict extraordinarily profitable investments.