Choosing the Wrong Entrepreneurs? How to Improve Public Resource Allocation Using Rational Heuristics

Assessing the potential of entrepreneurial opportunities is challenging, regardless of whether you are an investor (Baum & Silverman, 2004) or an entrepreneur (Sørensen & Sorenson, 2003).Because of this, developing economies play a risky game when allocating public resources to startups that offer an unguaranteed promise for job- and wealth-creation. Recent theoretical and empirical work using rational heuristics (Bingham & Eisenhardt, 2011) offers a potentially better alternative to the current, boundedly rational process for identifying the high-potential startups from the low-potential ones. This research project aims to compare the rational heuristics approach against the boundedly rational approach using a public policy based in a developing economy. The main goal is to discover and validate a novel approach for identification of startups with high job- and wealth-creation potential, which will help developing economies allocate their entrepreneurship-promotion resources more effectively.