Entrepreneurial decisions: viewing the affordable loss heuristic from an economic well-being perspective

Abstract

Purpose This article conceptualises how the economic well-being of an entrepreneurial household affects its members' mental accounting process to establish its affordable loss for a plunge decision. Design/methodology/approach The article used research literature to analyze the resources available for entrepreneurial endeavours against a household's ability to maintain acceptable minimum material living standards, juxtaposing income and wealth against competing consumption and investment opportunities. Findings Mentally accounting for whether household resources can meet minimum material living standards is central to entrepreneurs' ability to raise affordable loss and decide to invest in a new venture. The article proposes that entrepreneurial households establish affordable loss by availing their money exceeding that required to maintain acceptable minimum material living standards. In low-income households, the author assumes that members are not employed and can thus avail their time (versus money) towards affordable loss. Originality/value Economic well-being introduces mental accounts of income and wealth and a hedonic reference outcome in the material living standards of households required to meet basic needs. The article introduces the tension entrepreneurial households face between using their income and wealth towards investing in a new business and maintaining their material living standards. It introduces the idea that a loss can be “affordable” according to an entrepreneurial household's ability to remain above its acceptable minimum material living standard. This view prompts scholars to consider a household unit of analysis and avoid assuming an entrepreneur makes the plunge decision in isolation.

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