Entrepreneurs pride themselves on being logical decision-makers, but when it comes to deciding whether to persist with underperforming ventures, emotion often trumps reason. This study explores how entrepreneurs' cognitive styles—particularly their supposed rationality and their need for cognitive closure—affect their willingness to stick with failing businesses. The findings reveal that even entrepreneurs who view themselves as rational are prone to biased thinking, putting too much emphasis on past losses and too little on future opportunities. For family businesses, these insights are crucial: understanding these hidden cognitive traps can make the difference between timely strategic exits and destructive, prolonged investments.
Entrepreneurial persistence is often romanticized as the hallmark of successful founders: perseverance through adversity is celebrated, taught, and emulated. But persistence can also be dangerous—especially when it keeps entrepreneurs locked into failing ventures that sap financial resources, emotional energy, and family cohesion.
For family businesses, this issue is even more complex. Emotional attachment, legacy concerns, and the desire to protect family reputation often color business decisions. Understanding how cognitive biases shape persistence decisions is essential. This study offers a deep dive into entrepreneurial cognition, challenging the traditional view that decision-making in family enterprises is (or can be) purely rational.
This research bridges entrepreneurship and cognitive psychology, focusing on two key constructs:
To explore how these traits influence entrepreneurial persistence, the authors conducted three discrete choice experiments (DCEs):
Participants were asked to make 16 decisions between pairs of hypothetical underperforming ventures. Each scenario varied systematically based on six factors—three retrospective (past-focused) and three prospective (future-focused)—such as degree of underperformance, risk of default, and personal investment.
Despite rating themselves as rational thinkers, entrepreneurs frequently failed to act according to rational choice theory. Instead of weighing future gains and losses optimally, they were influenced by past investments and duration of underperformance, classic symptoms of the sunk cost fallacy.
This contradiction highlights a vital tension in family business leadership: leaders may intellectually recognize the need for rational analysis but emotionally struggle to abandon ventures that carry family history, pride, or identity.
Entrepreneurs with a high NFCC showed a strong preference for retrospective information—facts already known and certain—over speculative future opportunities like market growth potential.
This tendency to "freeze" on available information means family business leaders may cling to familiar but declining sectors or traditional business models even when evidence suggests pivoting or exiting would be wiser.
Across all three studies, entrepreneurs consistently gave more attention to past performance and sunk costs than to future risks or possibilities. Period of underperformance and personal investments often overshadowed important prospective factors like risk of default or potential for market expansion.
In family businesses, this insight underscores the emotional burden of abandoning "the family business project" and the dangers of valuing loyalty over adaptability.
The results also revealed variations across national contexts. Australian and UK entrepreneurs exhibited different cognitive patterns, likely influenced by cultural attitudes toward uncertainty and their respective experiences during the COVID-19 pandemic.
This finding suggests that family businesses operating internationally must be sensitive to how local cultural norms shape persistence behaviors.
Family businesses must acknowledge that persistence decisions are not purely data-driven. Emotional investments—financial, reputational, and relational—can distort rational judgment.
Strategic decisions should explicitly weigh both retrospective (past performance, sunk costs) and prospective (future risks and opportunities) factors. Create frameworks that guard against overvaluing historical investments.
Establish clear, measurable criteria for persistence or exit before emotional attachment deepens. This can prevent family businesses from staying too long in losing ventures due to misplaced loyalty.
Family businesses benefit from objective advisors or board members who can challenge assumptions and bring an outside-in view, less influenced by internal emotional dynamics.
Encouraging a culture that accepts ambiguity and open-ended possibilities can counteract the damaging effects of high cognitive closure tendencies.
This research challenges the heroic narrative of entrepreneurial persistence. For family businesses, the stakes are particularly high: clinging to underperforming ventures risks not only financial loss but also family conflict, erosion of legacy, and missed opportunities for innovation.
Future studies could further explore how intergenerational differences in family businesses—where younger members may be more comfortable with ambiguity—interact with cognitive styles to shape persistence decisions.
Understanding the subtle psychology of persistence offers family businesses a powerful tool: the ability to exit gracefully, innovate boldly, and sustain their legacy across generations.
Lin, N., Wilden, R., Chirico, F., Ghasrodashti, E., & DeTienne, D. R. (2022). Persist or let it go: Do rational entrepreneurs make decisions rationally? Journal of Business Venturing, 37(4), 106210
https://doi.org/10.1016/j.jbusvent.2022.106210Note: This text has been generated with the support of AI and verified by the authors. For any question, please refer to the authors.
