Entrepreneurship

Cognitive Foundations of Entrepreneurship: Creativity and

Opportunity Recognition

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“When written in Chinese the word crisis is composed of two characters. One represents danger and the other represents opportunity.”

--John F. Kennedy, 1959

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Why are some successful?

IndividualsOpportunities

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Right Person, Right Place, Right Time

• Better access to crucial information—information helpful in recognizing opportunities or formulating new ideas

• Better able to utilize information—to combine it or interpret in ways that reveal the opportunities overlooked by others

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Three Key Processes

• Idea generation

• Creativity

• Opportunity recognition

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A Cognitive Perspective

Human cognition—the mental processes through which we

• Acquire information

• Enter it into storage

• Transform it

• Use it to accomplish a wide range of tasks

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Ideas

Occur when individuals use existing knowledge they have gained (and retained) from their experience to generate something new—thoughts they did not have before.

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The Raw Materials

The raw materials for new ideas and for recognizing opportunities are present in the cognitive systems of specific persons as a result of their life experience.

Unique experience Knowledge Idea generation

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Memory

• Working memory—holds limited amount of information fro brief periods

• Long-term memory—retains vast amounts of information for long periods

• Procedural memory—automatic knowledge gained through practice

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Mental Frameworks

Mental scaffolds help us to understand new information and to integrate it (often in original ways)—with information we already possess

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Types of Frameworks

• Schemas—cognitive frameworks representing our knowledge and assumptions about specific aspects of the world

• Prototypes—abstract, idealized mental representations that capture the essence of a category of objects

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Mental Shortcuts

• Heuristics—simple rules for making complex decisions or drawing inferences in a rapid and seemingly effortless manner

• Availability heuristic—the more easily we bring information to mind, the more importance we assign to it

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Thinking “Tilts”

• Optimistic bias—expect things to turn out well without basis

• Confirmation bias—notice, process, and remember information that confirms current beliefs

• Illusion of control—assume that our fate is under our control

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Creativity

Items or ideas produced are both

• Novel (original, unexpected)

• Appropriate or useful

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Concepts

• Building blocks of creativity

• Internal mental structures developed to organize information

• Categories for objects or events that are somehow similar to each other in certain respects

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Escaping Mental Ruts

Concepts can be stretched in several different ways

• Combination

• Expansion

• Analogy

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“An old thing becomes new if you detach it from what usually surrounds it.”

--Robert Bresson

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Human Intelligence

Individuals’ abilities to

• Understand complex ideas

• Adapt effectively to the world

• Learn from experience

• Engage in various forms of reasoning

• Overcome a wide range of obstacles

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Kinds of Intelligence

• Analytic intelligence

• Creative intelligence

• Practical intelligence

• Social intelligence

• Successful intelligence

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Successful Intelligence

PracticalIntelligence

CreativeIntelligence

AnalyticIntelligence SuccessSuccessful

Intelligence

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Confluence Approach

Creativity emerges from a confluence of• Intellectual abilities• Broad, rich knowledge base• Appropriate style of thinking• Personality attributes• Intrinsic, task-focused motivation• Environment supportive of creative ideas

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Broad, Rich Knowledge Base

• Having varied work experience

• Having lived in many different places

• Having a broad social network

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Opportunity Recognition

Some people are more likely to recognize opportunities because

• They have better access to certain kinds of information

• They are able to utilize the information once they have it

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Superior Utilization of Information

• Richer and better-integrated stores of knowledge

• Higher in intelligence

• Higher in practical intelligence

• Higher in creativity

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Signal Detection Theory

HIT

Opportunity present and recognized

FALSE ALARM

Opportunity not present, but judged to be

present

MISS

Opportunity is present, but not

judged to be present

CORRECT REJECTION

Opportunity not present and judged to be

absent

Yes No

Actual Presence of Opportunity

Yes

No

Judgment About Presence

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Regulatory Focus Theory

• Promotion focus—attain positive outcomes

• Prevention focus—avoid negative outcomes

• Successful entrepreneurs adopt a mixture of these two perspectives

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Increasing Opportunity Recognition

• Build a broad, rich knowledge base

• Organize your knowledge

• Increase your access to information

• Create connections between the knowledge you have

• Build your practical intelligence

• Temper eagerness for hits with wariness of false alarms