Is It Better to Have Status or to Know What You Are Doing? An Examination of Position Capability in Venture Capital Markets

Previous research on status in markets has posited that status orderings are stable, self-reproducing entities. Higher status facilitates an actor’s ability to acquire resources that will in turn allow the actor s actually know what the correct resource allocations to make. This paper relaxes this assumption and regards the uncertainty underlying resource allocation decisions as a variable.This paper argues that as the uncertainty underlying resource allocation decisions increases, the returns to status decline. The greater the uncertainty underlying resource allocation decisions, the less that high status actors are able to make superior resource allocation decisions that are consistent with their superior status. This hypothesis is tested in an examination of the investment decisions of venture capitalists. Directions for future research are discussed.