Role of Affect for Attitudes on Energy Generation Technologiesbackup.oikos-international.org/fileadmin/oikos-international/... · Work in Progress – please do not cite without permission

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oikos Young Scholars Entrepreneurship Academy 2011 Cleantech Entrepreneurship, Finance and Policy

Role of Affect for Attitudes on Energy Generation Technologies

This is a work in progress. Please do not cite without permission of the author.

Sylviane Chassot

Institute for Economy and the Environment (IWÖ-HSG)

University of St.Gallen

[email protected]

Abstract

Large-scale market penetration of renewable energy technologies requires active partici-pation of private and professional investors such as homeowners or venture capitalists. The present research project assesses factors driving attitude on energy generation technolo-gies and examines the role of affect in attitude formation. Regarding venture capitalists, the empirical basis is a large-scale survey to investigate how perceptions about regulatory risk influence investment decision-making. It is suggested that investor behavior may best be understood in a bounded rationality perspective, and that a specific form of the affect heuristic may be at play when it comes to a VC‘s decision to invest in cleantech, resulting in what is called policy aversion bias. The findings shed light on the factors influencing policy aversion, and allow to draw important conclusions for venture capital investors and policy makers. Contrasting attitude formation among professional investors, a second empirical project surveys private households in the Lake Constance region. Two data col-lection waves before and after „Fukushima― and the sample comprising respondents from Germany, Switzerland, Austria and Liechtenstein will enable to isolate the effect of external conditions such as catastrophic events or energy policies in German speaking countries.

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Guy Kawasaki, Venture Capitalist

“I think that much of fund raising for a venture capital firm is like a dating analogy. Venture capital is hot or

not –in the first 5, 10 or maybe 15 seconds people decide. Whether you take 15 minutes to explain your back-

ground doesn’t really matter. You have roughly 15 seconds, and you are either hot or not!”

1. Introduction

The time for a transition to renewable energy sources is high; on top of increasing evi-dence of climate change and the decline of fossil energy sources comes the renewed awareness of the risks associated to nuclear power since the meltdown in Fukushima in March 2011. However, large-scale market penetration of renewable energy technologies requires active participation of professional investors such as venture capitalists, policy makers, citizens. In order to foster investments in renewable energy technologies, a first step is to understand potential investors‘ attitudes towards the issue.

Rational, profit maximizing decision making driven by transitive preferences of economic agents with perfect information – it is well recognized in economic research and in particu-lar in behavioral economics that these textbook assumptions are a good point to depart from, but not the end of the story. One dichotomy to distinguish rational from boundedly rational behavior stems from social psychology, analyzing the symbiotic influence of affec-tive and cognitive processes in attitude formation and decision making. The remaining question then is which kind of decisions are particularly susceptible to bounded rational or affective processes. The present research will investigate attitude formation on different energy generation technologies and provide empirical evidence for the role of affect in venture capital decision-making and investment decisions of private households.

Opinion polls among policy makers, professional and private investors consistently reveal a high level of support for renewable energy technologies. However, actual investment ac-tivities and purchase decisions are behind these numbers. In the United States for in-stance, an important market in the venture capital scene, clean technology investments only accounted for 11% of all venture capital dollars provided in 2009. Thus it is hypothe-sized here that affective components of attitudes regarding energy issues need to be strengthened in order to make investors ―walk the talk‖ (Litvine and Wüstenhagen 2011). In a first step, the impact of affective attitude components will be empirically analyzed. Secondly, an experimental setting will be used to investigate attitude changes toward nuc-lear power and renewable energy technologies after the catastrophic meltdown in Fuku-shima. So far, the research has been conducted in the context of two different research projects. In the first project, 176 venture capitalists participated in a conjoint experiment. Most of participants showed general support for clean tech issues. However, comparing to deals from other industries, VCs in the experiment were more reluctant to invest in a clean tech deal if regulatory exposure of the industry was high. Previous research on the emerging market for venture capital investment in clean energy technologies has shown that specific risks exist in energy venture capital investing, not least regulatory risk, but that there are also ways of managing these risks, and hence additional factors beyond pure risk-return considerations seem to be at play (Wu stenhagen and Teppo 2006). However, whether there are any biases in the assessment of regulatory risk has not been studied so far.


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Drawing on Slovic et al.‘s (2002) concept of an affect heuristic, who show that decision makers have a fast ability to categorize aspects as ―good‖ or ―bad‖ even before conscious deliberation sets in, we conjecture that venture capitalists are prone to suffer from what we call policy aversion bias (Bürer and Wüstenhagen 2009). Venture capitalists interviewed by Wüstenhagen and Teppo (2006) expressed very strong views about policy, for example: ―If there is no clear need for the government, let them stay out of the way.‖ Thus, it is explored whether a particular form of affect heuristic may be at play here, where venture capital investors intuitively categorize government intervention as ―bad‖, and hence strug-gle to convince themselves of investing in ventures that profit from government support, even if they may be attractive investment opportunities.

The second research project focuses on private investors in home based renewable energy appliances. To this end, an opinion poll was conducted among 600 inhabitants of the Lake Constance region with citizens from Germany, Austria, Switzerland and Liechtenstein. The first data collection wave took place in February 2011. The same sample will be questioned again in May 2011. Therewith, this database provides an opportunity for intrapersonal as well as interpersonal comparisons: The before-after Fukushima database where the same people are questioned on the same issues will allow to observe the impact of this cata-strophic event on the attitude towards nuclear power as well as renewable energy tech-nologies. Following the intense public discussion in German speaking areas in the after-math of ―Fukushima‖, it seems to be clear that the public opinion on energy generation technologies has changed. The negative aspects of nuclear energy became visible and offi-cials who long supported nuclear now advocate phasing out nuclear power plants and searching for alternatives. Whereas the discussion on renewable energies used to focus on problems and shortcomings of wind, solar & co., different questions have emerged since in public discussions; ―Which technologies could provide how much energy?‖, ―What would it cost to rely solely on renewables?‖. Clearly, this shift in media attention and public discus-sions has had an impact on the attitude of citizens. Recent opinion polls and elections are points in case. The intrapersonal comparison of attitudes will allow examining in more de-tail what exactly has changed in people‘s perception of different energy sources. Interper-sonal comparisons among respondents from Germany, Austria, Switzerland and Liechtens-tein will allow isolating the impact of different policy frameworks on energy attitudes. Arguably, the surveyed respondents present a relatively homogenous population, but nev-ertheless the opinion poll from February reveals significant differences in attitudes toward different generation technologies.

Both projects will provide evidence for policy makers how they could effectively leverage investments in renewable energy technologies. In terms of implications for managerial de-cision-making, the findings suggest that managers should critically reflect upon their atti-tude towards government policies and identify potential biases in their perception of regu-latory risk, because a disproportionate level of risk aversion might lead to missed oppor-tunities in the emerging clean energy industry. For the ―oikos young Scholars Entrepre-neurship Academy 2011‖ on Cleantech Entrepreneurship, Finance and Policy, the research presented will focus on the project on venture capitalists. Figure 1 provides an overview on the entire research plan. In the following sections, the theoretical framework on atti-tude research and the role of affect for attitude formation will be developed. Subsequent-ly, a short paragraph will analyze affective changes of attitudes from a theoretical point of view. In the last section, preliminary findings from the research project on venture capital-ists will be put up for discussion.

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2. The role of affect for attitude formation

2.1. Attitude formation

Back in the 1960ies attitude formation was on top of the research agenda of social psy-chologists. Rosenberg and Hovland (1960, cited in Ajzen 1980) distinguish a cognitive, an affective and a conative framework for attitude formation. The cognitive dimension com-prises the most systematic evaluation of an object based on opinions and beliefs. Affect emphasizes feelings and intuitive evaluations and conation is the intention toward a beha-vior. Fishbein circumscribes the dimensions using the example of attitude towards the church:

Affective component: I feel strong liking for the church.

Cognitive component: I believe the church has extremely desirable qualities.

Conative component: I act strongly supportive toward the church.

Translating this example to the context of energy generating technologies, a cognitive evaluation would emphasize the generation costs of renewable energies versus nuclear power for example, consider the ease of production and other facts-based characteristics. Affective reactions would be fear of a nuclear meltdown, not liking the visual aspects of wind mills or the denial of home based renewable energy applications because of the fear of being cold when there is no sun. Affective processes work through beliefs related to an object; the object nuclear power for example is related to certain beliefs such as ―nuclear power is a risky technology‖. In this case, the belief ―risk‖ transports affective feelings of fear, and thus the affective component of attitude towards nuclear power in this example is ―I‘m afraid of nuclear power because it is a risky technology‖.

Figure 1: Framework of dissertation


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2.2. Relevance of affect

Fishbein and Ajzen (1975) convey the most importance to affect for attitude formation and define an attitude as a ―person‘s general feeling of favorableness or unfavorableness to-ward some stimulus object‖. Or, even more clearly, ―attitude may be conceptualized as the amount of affect for or against some object‖. The increasing emphasize on aspects of attitude and behavior beyond rationality occurred in accordance with the general devel-opment of social and economic science of the time. In 1955 Simon published his influential behavioral model of rational choice. In the decades to follow, Gigerenzer, Kahneman and Tversky, to name just the few most important, tremendously contributed to research on bounded rationality and established behavioral economics as a received branch of research in contemporal economics. Therewith, several heuristics and biases as modes of behavior that depart from the strong rationality principle have been studied. In this context, the role of affect for attitude formation and decision making received renewed attention. The most famous conceptualization is the affect heuristic suggested by Slovic et al. (2002). Slovic et al. argue that the affect reaction to a stimulus precedes any cognitive processes and thus, an object is classified as ―good‖ or ―bad‖ even before conscious conjecture be-gins. A central assumption of the present research is that attitudes towards energy are mostly based on affective processes. This point will be further developed below.

Depending on the object, affect and cognition are of different importance for attitude formation. One can say that an affect driven attitude is an efficiency gain in attitude for-mation; time consuming search and evaluation of information on the object is omitted and the attitude is simply based on gut feelings one inevitably has. Thus, an object that con-veys complex information is more likely to be evaluated from an affective point of view, especially if the attitude concerns a low involvement object. Furthermore, some objects by definition comprise mostly affect-related characteristics, such as culturally given habits that play an important role in self-image formation of an individual and thus have high emotional conotation. Typical meals, close family and friends, important social happenings are examples. These are objects of high involvement and not necessarily complex, but nevertheless the willingness to evaluate them from an objective cognitive point of view is low. At the other extreme of the affect-cognition continuum would be certain consumer products with high involvement (e.g. a new car) or low complexity (comparing different types of margarine).

It is important to note that very few objects are solely evaluated either from an affective or a cognitive perspective. Edwards (1990) describes a continuum between affect and cog-nition in which objects are placed. For the case of energy generation technologies, ―atti-tudes composed of a dominant cognitive structure with affective tags― could be a good description. According to Edwards, „this pattern may be characteristic of attitude objects about which an individual has considerable knowledge or utilitarian interest (e.g., books, films, political candidates). Such attitudes may also include those with a value expressive function, such as those held toward controversial social issues (e.g., the death penalty, abortion) which often are imbued with symbolic meaning and strong feelings―. To con-clude this section on the question for which attitudes affect matters the most, figure 1 summarizes the most important drivers of affect.

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2.3 Role of affect for attitude towards energy generation technologies

Energy generation technologies are an object comprising a high degree of complexity. It requires a lot of cognitive effort if one wants to build an attitude towards generation tech-nologies such as nuclear versus wind or solar energy based on facts. The high complexity in the energy context promotes affective reactions to the topic. Furthermore, energy is a low involvement product in particular for household customers. Energy in the form of electrici-ty or fuel does not provide utility to the customer by itself, but indirectly as it enables the use of utility providing appliances. Opinion polls provide evidence of the low involvement for electricity; about two of three private electricity customers usually do not know how much they pay for electricity, and even fewer know how much electricity in kilowatt hours they use. Nonetheless, emotional connotation related to energy arises from time to time, in particular when catastrophic events occur or when the prolongation of nuclear power plant‘s lifespan is on the political agenda. It would be too extreme to say that the attitude towards energy technologies is driven by affect alone, as information campaigns and fac-tual discussions in the public occur.

However, affect has a strong impact on energy attitude, as has been shown in academic research. An interesting study has been conducted by Siegrist et al. (2006), who compare explicit and implicit attitudes towards nuclear power. Comparing stated attitudes from questionnaire data with implicit associations to nuclear power, they showed that stated attitudes are more positive than those revealed in the implicit association test. The impli-cit association test is a new method to indirectly assess how strongly an object is linked to specific attributes, for example the object ―nuclear power‖ to ―risk‖. Siegrist et al. (2006) attribute the difference in explicit and implicit attitudes to the weaknesses of survey me-thods. Questionnaires require introspection by respondents, a situation where subjects tend to ―overrationalize‖ their thinking (Zacharakis and Meyer 1998, Olson and Zanna 1993) or may not want to reveal their true opinion because of social desirability. Further evidence on the importance of affect for attitude towards nuclear power stems from Pe-ters and Slovic (1996). Their study builds on the assumption that the belief that nuclear power is risky drives the affective process in attitude formation. In particular, they assess the influence of affect and worldviews on attitude. Worldviews are defined as measure of a person‘s attitudes toward political, economic, and social relations (e.g. fatalistic, hierar-chical, individual and egalitarian). Worldviews serve as ―cognitive filters‖. They conclude

Figure 2: Factors influencing the importance of affect for attitude formation (based on

Edwards, 1990)


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that their own data suggest that affect alone can be used as a powerful predictor of sup-port for nuclear power, but do also attribute a certain organizing influence of worldviews for attitude formation. Thus, ―to the extent that our judgments and actions are influenced by such ‗nontechnical‘ factors as affect and worldviews, we can appreciate why communi-cation of technical information about risk often has little effect on public attitudes toward hazards such as nuclear power plants or nuclear waste repositories. Our attitudes toward nuclear power are part of ‗who we are.‘ We cannot easily change these attitudes without changing some parts of our social worldviews and our emotional makeup.‖ Beyond per-ceived risk, Siegrist et al. (2000) suggest two additional beliefs on nuclear power that in-fluence the attitude through affect: social trust and perceived benefit of the technology. They define social trust as the willingness to rely on those who have the responsibility for making decisions and taking actions related to the management of technology. The authors believe that ―being able to determine who to trust is most important in those situations where the individual lacks the interest, time, abilities, knowledge, or other resources to personally make decision and take actions‖. They find a highly negative correlation of per-ceived risk and perceived benefits and that perceived risk substantially depends on social trust. Due to the importance of social trust, the authors conclude ―it may not be possible to change risk perception by emphasizing benefits associated with a technology‖.

Another energy generation technology where affective influences arise is wind power. Cass and Walker (2009) hypothesize that the visual impact of wind farms on landscape and dis-tributional or fairness issues cause affective or, in their wording, emotional reactions to projects. ―Responses to renewable energy projects are situated and multidimensional and also to some degree based on concerns that have a potential strong emotional basis. We should therefore expect emotion to be part of oppositional activism if not at its very foun-dation, and we would argue that it constitutes a fundamentally legitimate part of what it means to respond, resist and oppose. The question we are though concerned with in this paper is how such emotion is evaluated by others and, in particular, how its role is con-structed and represented within processes of decision-making.‖ Based on 42 expert inter-views with project developers and stakeholders, they conclude that opponents from indus-try (e.g. electric utilities) and policy makers systematically exploit emotional reactions of the public to hinder the realization of wind farm projects. They recommend project devel-opers to provide the public with factual information with ―a human face‖, meaning that personal communication is important to overcome emotional barriers fueled by opponents with professional interests.

So far it has been shown that affect is the dominant element of attitude formation for energy generation technologies. The present research will empirically assess the role of affect on the attitude towards renewable and nuclear energy. However, the aim is to go one step further and examine experimentally how attitude changes when different affec-tive reactions occur. Thus, the next chapter sheds light on the question how affect is es-tablished and how it can be changed.

3. Attitude change and critical discourse moments

As mentioned earlier, affective reactions are based on specific beliefs associated to an object. Thus, a way to change attitudes is to change or frame different beliefs associated to it. Edwards (1990) experimentally examined how to change attitudes. He concludes that attitudes based on affect are more vulnerable to affective means of persuasion whereas cognitive appeals provoked almost no attitude change. Siegrist et al. (2006) conclude from their comparison of explicit and implicit attitudes on nuclear power that subjects with neutral or negative implicit attitudes ―may pose a problem for long-term acceptance of

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this technology. Based on these results, one might expect that these persons would quickly change their views about nuclear power should another accident in a nuclear power plant occur.‖ Another accident would remind people of the riskiness of the technology and make them aware of their negative affects towards that object. The position advocated here is that public communication through media and social events can hardly change beliefs, however it can make different beliefs salient. Taking the current example of „Fukushima―, Siegrist et al. would argue that this event made the belief that nuclear power implies risks salient. This leads to a rapproachment of explicit and implicit attitudes towards this ener-gy source.

Note that the theoretical standpoint in this research is from the individual‘s perspective. Social influences on attitudes and interactions at the collective level are not considered, even though they are just as relevant as personal experiences with an object. Neverthe-less, in the context of energy and the impact of ―Fukushima‖ on attitudes, mostly public discourses through media impact an individuals‘ perception of the issue. Thus, it is impor-tant here to go one step beyond individual attitude changes and consider theories on atti-tude changes at the macro level. Collective attitudes or attitudes at the macro level are termed public opinion.

Talking about public opinion and social movements, Gamson (1992) takes „critical dis-course moments― as an empirical ground to analyze changes in public attitude. Examples for critical discourse moments of the time are the nuclear accident at Three Mile Island or Chernobyl. Analyzing the interplay of public opinion and media discourse, he emphasizes the role of critical discourse moments for creating perturbation. In particular, he writes that with continuing issues (such as nuclear power), ―journalists look for ‗pegs‘ – that is, topical events that provide an opportunity for broader, more long-term coverage and commentary.‖ Gamson distinguishes among ―packages‖ as specific aspects related to an object. For nuclear power, he distinguishes among several packages called ―progress‖, ―soft paths‖, runaway‖, ―no public accountability‖ and ―energy independence‖. At the core of a package is a frame, conveying the meaning of message. The ―soft paths‖ package for example frames nuclear power as a ―symbol of the wrong kind of technology: highly centralized and dangerous to the earth‘s sensitive ecology. By changing our careless and wasteful way of life to conserve energy as much as possible and by developing alternative sources of energy that are ecologically safe and renewable and have a ‗human face‘, we can become a society more in harmony with its natural environment.‖ The ―runaway‖ package frames nuclear power as ―a technology that has taken on an independent life of its own. Nuclear power is a genie that we have summoned and are now unable to force back into its bottle‖. Gamson observes that these two packages were not present in the media discourse before the Three Mile Island accident. In its aftermath and in particular after Chernobyl, the ―runaway‖ package was omnipresent, whereas the ―soft paths‖ pack-age did not receive particularly more attention. One hypothesis tested here is that after ―Fukushima‖, not only the ―runaway‖ issue is more present in the sense of awareness of risks associated to nuke, but also ―soft paths‖, in particular the potential of renewable energy technologies, is more present in the public opinion and influences now individual attitudes.

To sum up, the present research project will examine the role of affect for private house-holds. In particular, one hypothesis is that after ―Fukushima‖, perceived risk associated to nuclear power is a reactivated belief, which leads to more negative affective responses to that technology. Furthermore, the media discourse in German speaking countries after ―Fukushima‖ focused on the potential of renewable energies. Thus, intrapersonal compari-sons of respondents in the Lake Constance region is expected to reveal higher perceived benefits of these technologies. Regarding the role of affect for venture capitalists‘ atti-


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tudes, the hypothesis of the policy aversion bias will be tested. This research project is already more advanced and is discussed in further detail below.

4. Venture capitalists‘ policy aversion and the financing

of cleantech innovation1

While venture capital has been a key driver for commercialization in many high tech indus-tries (Florida & Smith, 1990; Gompers & Lerner, 2004; Kortum & Lerner, 2000), public poli-cies play a very prominent role in the commercialization of cleantech. The booming Euro-pean markets for wind and solar energy, for example, would not have emerged at the re-cent speed in the absence of favourable regulatory frameworks such as feed-in tariffs in Germany and Spain (Wüstenhagen & Bilharz, 2006). However, where there is light, there is shadow. Just as public policy can create opportunities, it can also create risk, for example in the form of unexpected changes in regulation. In a few extreme cases, such regulatory risk has taken the form of a collapse of markets such as the California wind industry in the 1980s, or the Spanish solar market in 2009. If investors in cleantech were perfectly rational actors, they would weigh the potential returns from favourable policies against the regula-tory risk and adjust their investments accordingly. But when looking at the relatively mod-est pace at which venture capitalists have picked up on cleantech growth opportunities, the question arises whether the substantial upside potential of policy support for renewa-ble energy has been appropriately weighed against the anecdotal evidence of regulatory risk. Venture capitalists interviewed by Wüstenhagen and Teppo (2006) expressed very strong views about public policy, for example: ―If there is no clear need for the government, let them stay out of the way.‖ In the current paper, we explore whether a particular form of affect heuristic may be at play here, where venture capital investors intuitively categorize government intervention as ―bad‖, and hence struggle to convince themselves of investing in ventures that profit from government support, even if they may be attractive invest-ment opportunities. Our research builds on and extends previous work on behavioral biases in the context of reactions to government policies, such as Hardisty et al.‘s (2010) work about the effect of attribute framing on voters‘ choice about carbon taxes, as well as on research about managerial perceptions of public policy, such as McEvily, Sutcliffe and Mar-cus (1994), and Bürer and Wüstenhagen (2009). Literature on government intervention specifically points to the role of regulation to ―mitigate market and systemic failures, eliminate structural rigidities, or respond to anticipatory myopia‖ (Salmenkaita & Salo, 2002, p. 183). Market failures and related government intervention currently receive con-siderable attention related to industries such as biotechnology (e.g. genetically modified food) and renewable energy (e.g. negative environmental externalities). Mowery (1995, p. 514) defines such a ‗technology policy‘ as a policy that is ―intended to influence the deci-sions of firms to develop, commercialize or adopt new technologies‖. In that sense, tech-

1 The results presented here stem from a research project of Nina Hampl, a colleague from the Good Energies Chair for Management of Renewable Energies. The project is funded by the Swiss National Science Foundation. The text below is a wrap up of a forthcoming paper by Sylviane Chassot, Nina Hampl and Prof. Rolf Wüstenhagen. The paper will be presented at the IAREP/ SABE / ICABEEP Conference on behavioral economics and social psychology (Exeter, July 12-16, 2011) and at the Academy of Management Annual Meeting (San Anto-nio, August 12-16 2011).

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nology policy is intended to have a positive impact on the decision of various institutions, such as technology companies and capital providers like venture capitalists. But technology policy might also have an adverse effect in creating regulatory risk that negatively influ-ences investment activities in new technologies (Salmenkaita & Salo, 2002). Government support is perceived as being unpredictable, hard to manage and outside of personal con-trol (Wüstenhagen and Teppo, 2006). To test our hypotheses, we conducted choice experiments with 176 venture capital inves-tors mainly from North America and Europe, resulting in a dataset of 5‘792 investment choices among hypothetical clean energy firms. Our findings reveal a significant level of policy aversion, and we investigate the moderating influence of general VC industry expe-rience, clean energy investment experience and geographical location. Our hypothesis is that there are socialization effects and ideological peer pressure, which lead to an increas-ing level of policy aversion after spending time in the venture capital community, where ―free-market‖ capitalism is highly valued. On the other hand, we expect clean energy in-vestment experience to be negatively correlated with policy aversion, as investors actually dealing with regulatory risks and opportunity on a daily basis will become less policy averse and more likely to be aware of the significant upside opportunities of energy and climate opportunities. As for geography, we expect Anglo-Saxon venture capitalists to be more policy averse than their counterparts from continental Europe, in line with the stronger tradition of the welfare state in most European countries.

4.1 Methods

Our primary mechanism for gathering the data was a web-based survey that was open be-tween March 2010 and April 2010. As the VentureXpert database reached back to 1990 this produced a large number of delivery failures due to outdated e-mail addresses (6,227 deli-very failures in total). 176 venture capitalists finally took part in our conjoint experiment constituting a response rate of 1.09%. While our sample can not claim to be statistically representative, we tried to maximize representativeness by controlling for a good mix of different types of venture capitalists with regard to personal characteristics, such as age, experience in different industries, venture capital affiliation and firm specific criteria, such as number of active funds, headquarters location and firm size (number of em-ployees, number of partners). The conjoint design we employ in this study allows us to present various investment op-tions to respondents and ―force‖ them to make an investment decision in that simulated environment. Conjoint analysis has enjoyed a recent surge in popularity in the domain of entrepreneurship research, primarily by venture capital scholars (e.g. Franke et al., 2006; Shepherd, 1999; Shepherd & Zacharakis, 1999; Shepherd, Zacharakis, & Baron, 2003; And-rew L. Zacharakis, McMullen, & Shepherd, 2007) and calls for its broader use in the domain continue (Dean, Shook, & Payne, 2007; DeSarbo, MacMillan, & Day, 1987; Lohrke, Hollo-way, and Woolley, 2010; Shepherd & Zacharakis, 1997). The main advantage of the method in the examination of venture capitalist decision-making is that it enables researchers to overcome the challenges with post hoc data collection, which requires respondents to re-call and articulate past decisions, which may result in recall bias and revisionism. As noted earlier and emphasized in the VC context by Shepherd and Zacharakis (1997), social desi-rability, faulty memory, or the inability to articulate complex decision processes plagues earlier approaches to capturing decision policies. This research project responds to calls in entrepreneurship research to employ experimental methods that overcome these potential limitations (Busenitz et al., 2003; Lohrke et al., 2010).


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4.2 Measures Dependent variable Aligned with previous research, we are ultimately interested in the venture capitalist‘s decision to invest as the dependent variable. Given the above considerations about making the experimental setting as realistic as possible, we focus in our study on the very early stages of the venture capital evaluation cycle—the screening phase—for which the stylized choice tasks in our survey provide a good proxy. Therefore, the dependent variable is more specifically defined as the decision to move the deal to due diligence or pass on the deal. The maximum number of deals moved to due diligence is 24. 169 respondents performed screening tasks. On average, 16.669 deals (SD=5.012 deals) out of 24 were perceived as potential deals. Moderating variable: Policy Aversion In order to measure this new construct, we developed a policy aversion scale (Table 2). The scale includes 8 items, each ranked on a 5-point likert scale. It combines items from the European Social Survey (www.europeansocialsurvey.org) about general attitudes to-wards government with clean energy-specific statements derived from previous empirical research with investors in this domain (Wüstenhagen and Teppo 2006, Bürer and Wüsten-hagen 2009). 149 or 85% from the overall sample of 176 respondents completed the ques-tions on policy aversion. In order to condense the information of the 8 policy aversion items, we conducted a cluster analysis to distinguish respondents by their degree of policy aversion. The strongly policy averse cluster rather strongly agrees with both statements ("We would never invest in a firm that relies on government subsidies" and "If there is no clear need for government, let them stay out of the way."). In particular, this cluster on average clearly agrees that they would never invest in a deal depending on government subsidies. 59 or 41.6% of the respondents who answered the policy aversion-questions be-long to this cluster. The second cluster is still policy averse, but not as much as the first cluster. The 47 or 33.1% of this cluster on average rather disagree with that they would never invest in such a deal, however still tend to agree to the statement that government should stay out of the way whenever possible. The least policy averse cluster disagrees with both statements. 36 respondents or 25.4% seem to have rather positive attitudes to-wards government intervention.

Control variables

Venture deals are complex, with venture investors potentially leading the round of invest-ment (orchestrating the investment syndicate) and then potentially choosing to pass (or play a reduced role) in subsequent rounds of financing. These deals can occur at different stages in the life cycle of the firm, from early-stage investment (the first professional ven-ture money in the deal) to middle or late-stage investment, when more capital is poten-tially required but much of the product or market risk has been wrung out of the invest-ment. In order to control for the complexity of the venture process we hold these factors constant by focusing on the first round of investment. We control for variations across in-dustry contexts by selecting a single industry for the deal—clean energy. Because we col-lect information from the venture investor about their years of experience in six industries (Biotechnology, Information and Communication Technologies, Consumer Related, Clean Energy, Conventional Energy, Medical/Health, and Other Products) our research design enables us to hold the industry context constant and yet measure the level of uncertainty (measured as years of specific domain experience in the focal industry) at the level of the individual investor. In particular, we found for general venture investor experience that

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the longer a respondent already works as a venture capitalist, the more likely he is to be strongly policy averse. Running an ANOVA shows that this difference is significant at the 5%-level. (p=0.029). The range of experience is between 0 and 35 years (mean=7.284, SD=7.060). On the other hand, figure 3 clearly indicates a contrary effect of clean energy domain experience, in the sense that respondents with experience in the cleantech indus-try are less policy averse on average. However, the p-value of the ANOVA rejects the signi-ficance of this difference (p=0.536). Regarding geographical data, we divided our sample into Anglo-Saxon respondents (based in the US or UK, which were 64 and 9 respondents, respectively) and other respondents. Of the non-Anglo-Saxon respondents, 55 work in con-tinental Europe, 10 in Asia, 6 in Australia and 1 in South America. The data supports our hypothesis that Anglo-Saxon respondents are significantly more policy averse (p=0.055). Among strongly policy averse respondents, 57.63% work in the US or UK. Age of respon-dents is another personal characteristic we control for. The mean of age is 43.35 years (SD=11.39 years). The ANOVA of policy aversion on age does not indicate a significant dif-ference in age among the three policy aversion-clusters (p=0.292). Beyond personal cha-racteristics, some information on the venture capital firm of the respondents is included in the model, too. In particular, we consider the number of employees, partners of a firm and the funds managed to be relevant and include them as control variables into the regression model discussed in the subsequent section.

4.3 Regression results

Regression results are given in Table 1. In model one, personal characteristics such as VC and industry experience are included to explain the dependent variable willingness to in-vest. Additionally, the demographic factors age and region are considered, too. However, none of these variables have a significant impact on the dependent variable. The second model is extended to the firm characteristics number of employees, partners and funds. A marginal increase in the number of funds on average reduces the number of deals passed to due diligence. Lastly, we included policy aversion in the model in the form of dummy variables for the strongly policy averse and the policy averse cluster (policy neutral res-pondents being the reference group). These dummy variables are equal to one if a respon-dent belongs to the respective cluster. Belonging to the strongly policy averse cluster im-plies on average a significantly lower number of deals passed. The measured effect is rela-tively large, as strongly policy averse respondents passed 1.812 fewer deals to due dili-gence than the policy neutral respondents (p=0.003).

Table 1: Results of Tobit regression model

(1) (2) (3a) (3b)

Dep. Var.: Deals passed to due diligence regression

output

regression

output

regression

output

marginal

effects

General experience as venture investor 0.124 0.075 0.090 0.076

(0.082) (0.086) (0.094) (0.077)

Experience as venture investor in cleantech industry 0.078 0.100 0.079 0.067

(0.084) (0.080) (0.079) (0.066)

Age -0.086 -0.056 -0.065 -0.055

(0.059) (0.060) (0.061) (0.049)


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US / UK 0.382 0.262 0.423 0.356

(0.675) (0.754) (0.739) (0.626)

Number of employees 0.003 0.003 0.003

(0.002) (0.002) (0.002)

Number of partners 0.129 0.117 0.099

(0.111) (0.106) (0.088)

Number of funds -0.197*** -0.211*** -0.178***

(0.044) (0.052) (0.047)

Strongly policy averse -2.152*** -1.812***

(0.762) (0.602)

Policy averse -1.363 -1.149

(0.825) (0.701)

Constant 20.260*** 19.268*** 21.099***

(2.048) (2.066) (2.335)

Observations 134 117 112

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