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Classnotes chapter 3: Cognitive foundations of entrepreneurship:
creativity and opportunity recognition.
Human cognition: the mental processes through which we acquire information, enter it
into storage, transform it, and use it to accomplish a wide range of tasks.
Ideas occur when individuals use existing knowledge they have gained (an retained) from
their experience to generate something new. Often this process is stimulated by some
external event
The raw materials for creativity and opportunity recognition: Mental
structures that allow us to store—and use—information.
Why do some persons generate ideas for new products or services?
The answer seems to involve having just the right combination of past experiences.
Because everyone’s experience is unique, the information they have at their disposal, too,
is unique, and this is a key reason why specific ideas occur to some persons but not others
Cognitive systems for storing—and using—information: memory, schemas,
Working memory (limited)
Long term memory (unlimited)
Procedural memory
Using and transforming information: schemas and prototypes
We have mental scaffolds that help us to understand new information and integrate it
(often in original ways)--with information we already possess. Several kinds exist but the
most important are:
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.
Schemas and prototypes can facilitate and hinder creativity.
Limited capacity to process information: Why total rationality is rarer than
you think
Because of our limited capacity to process information, we often adopt mental shortcuts.
Although many of these exist, the most useful are heuristics—simple rules for making
complex decisions or drawing inferences in a rapid and seemingly effortless manner—
and among heuristics the availability heuristic is perhaps particularly relevant: the easier
it is to bring information to mind, the more important or accurate we perceive it to be,
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and hence the greater its impact on our subsequent judgments or decisions. Further, the
more information we can bring to mind, the greater the importance we assign to it.
Other tilts or potential errors:
Optimistic bias.
Confirmation bias.
Illusion of control.
Creativity: Escaping from mental ruts.
Concepts: the building blocks of creativity
Concepts act as a kind of “filing system” in memory, and once established, can help to
store new information. Concepts exist in memory in hierarchical networks. This filing
system enhances our ability to retrieve a vast amount of knowledge. It also constraints
our thinking by limiting the things that we consider combinable.
How to escape?
Concepts can be combined.
Concepts can be expanded or stretched.
Concepts can be changed through analogies: knowledge is like a light in the dark
Creativity and human intelligence
Intelligence is important but it has several facets. It is not a unitary phenomenon. We
now identify several kinds: analytic, creative, practical, social.
Encouraging creativity: the confluence approach
This approach, as its name suggests, proposes that creativity emerges out of the
confluence (i.e., convergence) of several basic resources:
Intellectual abilities: Ability to see problems in new ways, recognize which ideas are
worth pursuing coupled with persuasive skills.
A broad and rich knowledge base: a large store of relevant information in memory
without such knowledge, the cognitive foundations for creative thought are lacking
A preference for thinking in new ways (style)
Personality attributes (willingness to take risks and tolerate ambiguity)
An environment that is supportive of creative ideas.
Ways to enhance the likelihood to generate ideas:
Increase your knowledge base: Ideas to not emerge from a vacuum. Rather they
derive from combining, stretching, or viewing existing information in a new way.
Cultivate a style of thinking that helps to break out of mental ruts
Work on environments that encourage creativity
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Opportunity recognition: A key step in the entrepreneurial process.
Having better access to certain kinds of information and being able to use this
information effectively play a crucial role in identifying opportunities.
Access to information and its effective use
Greater access to information: Personal (professional and biographic), social
networks, searching for information
Superior utilization of information: superior storage and recall. Better at
Opportunity recognition: additional insights from cognitive science
Signal detection theory: How do we decide whether there really is anything out there to
notice? Four possibilities exist:
1. Stimulus exists and the perceiver concludes that it is there (correct identification)
2. Stimulus exists and the perceiver does not realize that it is there (miss)
3. Stimulus does not exist and the perceiver concludes that it is there (false alarm)
4. Stimulus does not exist and the perceiver does not realize that it is there (correct
Entrepreneurs are strongly motivated to obtain hits but also to avoid misses and false
What factors determine whether someone is motivated to attain hits, avoid false alarms,
or avoid misses? Regulatory focus theory. Individuals one of two focuses: Promotion or
We expect entrepreneurs to adopt a promotion focus, that is to be more concerned with
attaining hits and avoiding misses than with avoiding errors (false alarms and rejections)
Practical techniques for increasing opportunity recognition
Build a broad and 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