Risk Taking in the Gain Domain: A Predictive Decision Model of New Venture Creation

The research investigates the determinants of people’s risk taking in new venture creation. By extending boundary conditions of the framing effect of the prospect theory, this study justifies and examines the likelihood of risk taking in the gain domain. A predictive decision making model is proposed on the basis of individual differences in risk preferences. Our findings show that the subjective value, subjective probability and the intensity of immediate anxiety in this model correctly predict over 80 percent of the decisions regarding new venture creation in the gain domain. And the subjective probability plays a central moderating role in undertaking a new venture. Study two experiments and replicates the results of study one. After a dynamic learning process, the framing effect appears to be reversed, that is most of people take a risk in the gain domain under the given condition. Even though, the reversed framing effect is still explainable by the proposed predictive model, indicating its generalizability. The slightly different effect of subjective probability at the lower level on risk taking between the two studies implies interesting decision styles between novice and experienced decision makers.