ENDOGENOUS FACTORS

There is some tension between experience and measurements (or other forms of evaluations). We experience things internally (subjectively), while we only validate measurements when they are externally visible. If someone says something to me that I find offensive, my attempt to explain why I am offended can be successful if I can persuasively argue for the reasons. But my reasons for taking offense are predicated on how the statement in question made me “feel”. Some cognitive researchers even claim that the reasons I will provide are mere ex-post rationalizations of my “feelings”.

The internal — mental processes of decision-making in business get rarely discussed. We focus mostly on the external measurable elements — choices and actions. What goes on in the heads of executives and managers — and how does that shape the choices that are made over time?

THE ENTREPRENEURIAL CHOICE

These differences between exogenous and endogenous factors are not irreconcilable. They are not independent of each other — and there are sensory and mental feedback loops from one to the other. The decision to become an entrepreneur in the first place is an illustrative example. William Baumol states that entrepreneurial variation is higher within countries than between them. His assumption is that the supply of entrepreneurs is constant across time, but their allocation varies — the…