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  • ஽ Academy of Management Review 2008, Vol. 33, No. 2, 328–340. THE ROLE OF AFFECT IN THE ENTREPRENEURIAL PROCESS ROBERT A. BARON Rensselaer Polytechnic Institute Research findings indicate that the feelings and moods individuals experience (i.e., their affect) influence many aspects of cognition and behavior. Extending these findings to entrepreneurship, I suggest that affect influences several aspects of entrepreneurs’ cognition and, hence, important elements of the entrepreneurial process. I propose a theoretical framework for understanding the role of affect in key aspects of entrepreneurship (e.g., opportunity recognition, resource acquisition). An extensive body of research indicates that affect—feelings and emotions— exerts strong effects on cognition—the processes through which information is entered into memory, processed, and retrieved for later use (e.g., Forgas, 1995, 2000; Isen, 2002). Taken as a whole, this literature indicates that the interface between affect and cognition is both continuous and pervasive. In addition, it is reciprocal in nature so that, as suggested by several authors, feelings shape thought and thought shapes feelings (e.g., Isen & Baron, 1991). The influence of affect on cognition has been observed in a wide of range business contexts, where it has been found to influence several individual, interpersonal, and organizational processes (e.g., George & Brief, 1992; Weiss, Nicholas, & Daus, 1999). For instance, affect has been shown to influence decision making (e.g., Isen, 1993; Isen & Labroo, 2003), many kinds of judgments and evaluations (e.g., performance appraisals, ratings of job applicants; Cropanzano & Wright, 1999), job satisfaction (e.g., Weiss, 2002), and performance on many cognitive tasks (e.g., Staw & Barsade, 1993). Affect has also been shown to influence several important forms of organizational behavior, ranging from willingness to engage in citizenship behavior (e.g., George & Brief, 1996; Podsakoff & MacKenzie, 1997) and cooperation among work team members (e.g., Beersma et al., 2003) to workplace aggression (e.g., Griffin & O’Leary-Kelly, 2004). In this paper I seek to extend this previous work by developing a theoretical framework for understanding the potential role of affect in entrepreneurship. In order to progress toward this goal, I proceed as follows. First, I examine reasons why affect may be directly relevant to entrepreneurship. Second, I briefly review major findings concerning the interface between affect and cognition. In a third section I then use the information presented in these initial discussions to develop a theoretical framework concerning the role of affect in several key aspects of the entrepreneurial process (e.g., opportunity recognition, resource acquisition). In a final section I examine implications and potential contributions of the present framework. Before beginning, two basic points should be clarified. First, for the purpose of the present discussion, I define entrepreneurs as individuals who recognize and exploit new business opportunities by founding new ventures (Shane & Venkataraman, 2000). Further, since this paper focuses on the influence of affect on the cognition and behavior of individuals, I further limit attention to entrepreneurs who found new ventures and who, therefore, make decisions, take actions, and identify opportunities individually rather than as part of a team or group (e.g., within a department of a large organization). Second, the distinction between state affect and dispositional (trait) affect should be briefly addressed. State (or event-generated) affect refers to shifts in current moods produced primarily by external events. In contrast, trait (dispositional) affect refers to stable tendencies to experience specific affective reactions across I express my sincere thanks to Rebecca A. Henry for her invaluable comments on earlier versions of this paper and for her many excellent suggestions concerning the theoretical proposals presented here. In addition, I thank the editor and anonymous reviewers for their exceptionally constructive, informative, and thoughtful comments on several previous versions of the paper. 328 Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder’s express written permission. Users may print, download, or email articles for individual use only.
  • 2008 Baron many situations (e.g., Isen, 1999). While dispositional affect and state affect clearly derive from different sources (biological processes and perhaps genetic influences on the one hand versus discrete external events on the other), a substantial body of research indicates that both produce parallel effects in many situations (see Lyubomirsky, King, & Diener, 2005, for a detailed review). In view of this evidence, I assume here that both forms of affect exert parallel and similar effects. Throughout this paper, therefore, I use the terms positive affect and negative affect to refer to such feelings, regardless of whether they are generated by specific events or by stable, underlying propensities toward such reactions. WHY AFFECT IS RELEVANT TO ENTRERNEURSHIP While the findings of previous research clearly indicate that affect influences several aspects of cognition in work settings (e.g., Borman, Penne, Allen, & Motowidlo, 2001; Staw, Sutton, & Pelled, 1994), the great majority of this research was conducted in large, established organizations and with employees rather than company founders. This raises the following question: Do such effects also occur in new ventures and among entrepreneurs? Although very little direct evidence on this issue is currently available, there appear to be two major reasons for suggesting that affect may indeed be relevant to processes occurring during the creation of new ventures. First, the environments in which entrepreneurs function are often highly unpredictable and filled with rapid change (e.g., Lichtenstein, Dooley, & Lumpkin, 2006). As a result, such environments are not ones in which individuals can follow well-learned scripts or prescribed sets of procedures. Rather, as many entrepreneurs put it, they must often “make it up as they go along.” Research on the influence of affect suggests that it is most likely to exert powerful effects on cognition and behavior in precisely this type of situation. In contexts involving high uncertainty and unpredictability, affect can readily tip the balance toward specific actions or decisions— effects it might not produce in environments that are more certain and predictable (e.g., Forgas, 1995, 2000; Forgas & George, 2001). For this reason, affect may have espe- 329 cially important consequences for entrepreneurship. A second reason why affect may often exert strong effects in the domain of entrepreneurship relates to the specific tasks entrepreneurs perform in starting new ventures. These tasks are highly varied in nature and change significantly as the process unfolds (e.g., Baron, 2006b; Shane, 2003). However, many of these activities are ones that have previously been shown to be strongly influenced by affect (e.g., see Forgas, 2000, and Lyubomirsky et al., 2005). For instance, as discussed in greater detail in a later section, affect has been shown to exert strong effects on creativity (which may play an important role in opportunity recognition; e.g., Isen, 1993), on persuasion (which may influence entrepreneurs’ success in acquiring essential resources), on decision making and judgments (which play a key role in the formation of effective business models and strategies; e.g., Ireland, Hitt, & Sirmon, 2003), and on the formation of productive working relationships with others (e.g., Diener & Seligman, 2002; Harker & Keltner, 2001). Since affect has been found to exert strong effects on all these activities, it is directly relevant to entrepreneurship. HOW AFFECT INFLUENCES COGNITION: AN OVERVIEW OF RESEARCH FINDINGS Previous research suggests several ways in which affect influences cognition. Since these findings provide the foundation for the theoretical framework offered in a later section, I briefly review them here. This review is not in any sense comprehensive; rather, it emphasizes findings most germane to the field of entrepreneurship. One way in which affect influences cognition is through its impact on perceptions of the external world. Persons experiencing positive affect tend to perceive objects, other persons, ideas, and almost anything else more favorably than individuals experiencing neutral or negative affect (e.g., Bower, 1991; Garcia-Marques, Mackie, Claypool, & Garcia-Marques, 2004). Such effects have been observed in many business contexts. For instance, interviewers experiencing positive affect tend to evaluate applicants more favorably than those experiencing negative affect (Burger & Caldwell, 2000), and raters (i.e., managers) experiencing positive af-
  • 330 Academy of Management Review fect tend to assign higher performance appraisals to subordinates than those experiencing negative affect (e.g., Wright & Staw, 1999). In addition, positive affect seems to enhance individuals’ alertness to the external environment generally (e.g., Isen, 2002) so that persons experiencing positive affect tend to perceive a broader array of events and stimuli than persons experiencing negative affect (e.g., Schiffman, 2005). Implications of these effects for entrepreneurship are described below. A second way in which affect influences cognition involves creativity. While many complexities exist with respect to this relationship, extant evidence suggests that, in general, individuals experiencing positive affect tend to be more creative than those experiencing neutral or negative affect (e.g., Estrada, Isen, & Young, 1997; Isen, 2000). It is important to note, however, that under specific conditions (e.g., when creative performance is clearly linked to recognition and organizational rewards), negative affect, too, can enhance creativity, perhaps by increasing individuals’ efforts to attain creative outcomes (George & Zhou, 2002). Since a clear link between creativity and reward is often lacking in new ventures (many creative products or services fail to gain market acceptance), I suggest that, in general, positive affect is more likely than negative affect to facilitate creativity. This, finding, too, has important implications for the entrepreneurial process. A third way in which affect influences cognition involves the tendency to engage in heuristic processing—thinking that relies heavily on mental “shortcuts” (heuristics) and knowledge acquired through past experience. This, in turn, has important implications for decision making and problem solving—activities performed by entrepreneurs on a regular basis and that can strongly influence the success of new ventures. Research findings indicate that persons experiencing positive affect are more likely than persons experiencing negative affect to engage in heuristic thought (i.e., to rely on previously acquired “rules of thumb” and previously gathered information) in dealing with current problems or decisions (e.g., Mackie & Worth, 1989; Park & Banaji, 2000; Wegner & Petty, 1994). This tendency, in turn, offers a mixed pattern of advantages and disadvantages. Potential benefits include the capacity to make decisions faster and April a release of cognitive resources for use in other tasks (Erez & Isen, 2002). An enhanced tendency to engage in heuristic thought, however, can interfere with effective decision making and problem solving when individuals face novel tasks to which previous knowledge is not applicable or relevant (Isen, 2000). In such cases detailed, analytical thinking is required, and heuristic processing may prove detrimental. Additional and especially important effects of affect on cognition involve memory. Basically, affect has been found to influence memory in two ways. First, current moods strongly determine which information in a given situation is noticed and entered into memory—an effect known as mood congruence. In other words, current moods serve as a kind of filter, permitting primarily information consistent with such moods to enter into long-term storage. Second, affect also influences what specific information is retrieved from memory—an effect known as mood-dependent memory (e.g., Baddeley, 1990; Eich, 1995). When experiencing a particular mood, individuals are more likely to remember information they acquired in the past while in a similar mood than information they acquired while in a different mood. Current moods, in other words, serve as a kind of retrieval cue, prompting recall of information consistent with these moods. Together, mood congruence and mood-dependent retrieval effects strongly influence the information individuals store in memory and retrieve for later use. Since the information individuals can bring to mind in any given situation provides the basis for judgments and decisions, the impact of affect on memory has important implications for key aspects of new venture creation; I describe these effects in a later section. Affect has also been found to influence the cognitive strategies individuals use in coping with intense and persistent stress (e.g., Carver & Scheier, 2001). Positive affect enhances preferences for relatively effective strategies for dealing with stress, such as direct efforts to address and solve problems, whereas negative affect tends to enhance preferences for less effective strategies, such as avoidance, denial, or reliance on alcohol and other drugs. Since effective coping has important implications for personal health (e.g., Cohen, Doyle, Turner, Alper, & Skoner, 2003) and since entrepreneurs’ health
  • 2008 Baron can have important effects on their new ventures, these findings, too, appear to be relevant to entrepreneurship. Finally, affect influences interpretations of others’ motives. Positive affect tends to promote attributions of positive motives, whereas negative affect tends to encourage attributions of negative motives (e.g., Forgas, 2000). One consequence of this tendency is that positive affect may tend to reduce conflict between individuals who work together, such as cofounders of a new venture (e.g., Barsade, 2002). In addition, it also enhances attaining optimal outcomes in negotiations (e.g., Baron, Daniels, & Rea, 1992; Forgas, 1998). Since conflict between founders has been found to adversely influence the survival of new ventures (e.g., Ensley, Pearson, & Amason, 2002), and since entrepreneurs must engage in negotiations on a regular basis, these effects have important implications for entrepreneurship. Neuroscience Evidence for the Interface Between Affect and Cognition Together, the research findings summarized above suggest that affect does indeed influence many aspects of cognition. The importance and very basic nature of the interface between affect and cognition are, perhaps, most clearly illustrated by the findings of yet another body of research— one employing modern techniques for observing activity in the human brain during the performance of cognitive tasks (e.g., Willingham & Dunn, 2003). This research suggests that affect and cognition interact even at very basic levels of neural functioning (Cohen, 2005) and that, moreover, two distinct systems for processing information may exist within the human brain (e.g., Cohen, 2005). One system is concerned with what might be termed reason (or logical thought), while the other deals primarily with affect or emotion. Growing evidence suggests that these two systems interact in complex ways during problem solving, decision making, and other important forms of cognition. For instance, consider research using what is known as an “ultimatum” paradigm (e.g., Sanfey, Rilling, Aronson, Nystrom, & Cohen, 2003). In this situation, two persons are told that they can divide a given sum (e.g., $10) between them. One can suggest an initial division and the second can accept or reject it. Since any division provides the second person with positive payoffs, 331 total rationality suggests that this individual should accept any division offered; doing so will result in tangible gains. In fact, however, most people reject divisions that offer them less than $3, and many reject divisions that offer them less than $5. MRI scans reveal that when individuals receive offers they view as unfair, brain regions related both to reasoning (e.g., the dorsolateral prefontal cortex) and to emotion (e.g., the limbic system) are activated. However—and this is the crucial finding—the greater the amount of activity in emotion processing regions of the brain, the greater the likelihood that individuals will reject the offers—act in ways that are, in a sense, contrary to their own economic interests (e.g., Sanfey et al., 2003). These findings, and those of related research, suggest that affect and cognition interact at very basic levels within the brain. Further, it appears that affect can sometimes outweigh rational considerations in decision making and other cognitive processes (e.g., Cohen, 2005). In light of such findings, it seems essential that affect be included as a variable of interest in future efforts to investigate entrepreneurial cognition. To the extent the framework presented here encourages such inclusion, it may offer useful contributions to ongoing research. In sum, affect has been found to influence many aspects of cognition. Moreover, several of these effects appear to be directly related to activities entrepreneurs perform in starting new ventures. In the remainder of this paper, I develop specific propositions concerning the potential role of affect in key aspects of the entrepreneurial process. Before turning to these proposals, however, I briefly describe two mechanisms through which affect influences cognition—and hence key aspects of entrepreneurship. The Influence of Affect on Cognition: Underlying Mechanisms Although the interface between affect and cognition is complex, two basic mechanisms appear to play an important role in this relationship (e.g., Forgas, 1995; Forgas & George, 2001). The first relates to the mood-dependent retrieval effects described above. Briefly, current moods or feelings serve to prime (elicit) specific memories and associations— ones linked, cognitively, to such feelings. For instance, when indi-
  • 332 Academy of Management Review viduals experience positive affect, positive associations or memories are brought to mind. When they experience negative affect, in contrast, negative associations and memories are activated (i.e., are primed; Bower, 1991). Second, affect influences cognition by serving as a heuristic cue—an efficient basis for inferring reactions to a specific person, event, or stimulus. According to this affect-as-information mechanism (Clore, Schwarz, & Conway, 1993; Martin & Stoner, 1996), when making judgments about objects, events, or persons, individuals examine their feelings and respond accordingly. When experiencing positive affect, they are likely to make favorable judgments or evaluations; when experiencing negative affect, in contrast, they will tend to form negative evaluations or judgments. Importantly, this process appears to operate even when current moods or feelings are unrelated to the object, person, or event being considered. In essence, affect can influence judgments and decisions even when the affect does not stem in any way from the objects, persons, or events being evaluated (Forgas, 2000). This suggests that the influence of affect on judgments and decisions is indeed pervasive. A large body of evidence lends support to the role of both of these mechanisms, so I assume here that they provide a useful basis for understanding how affect influences many aspects of cognition (e.g., Forgas, 1998; Martin & Stoner, 1996). AFFECT AND KEY ASPECTS OF THE ENTREPRENEURIAL PROCESS Given the breadth of the effects described above, it seems clear that affect can potentially influence entrepreneurship in many ways. I focus my attention here, however, primarily on the potential role of affect in several key aspects of the entrepreneurial process—aspects that have been found to strongly influence the success of new ventures: opportunity recognition, acquisition of essential resources (financial and human), and the capacity to respond quickly and effectively to rapid change in highly dynamic environments (Shane, 2003). In addition, I briefly examine the role of affect in entrepreneurs’ capacity to tolerate intense levels of stress. April Affect and Opportunity Recognition Opportunity recognition has long been viewed in the field of entrepreneurship as a central aspect of new venture creation (e.g., Ardichvili, Cardozo, & Ray, 2003; Baron, 2006a; Shane, 2003), and although there continues to be considerable debate over its essential nature (e.g., Krueger, 2003), scholars widely assume that opportunity recognition involves cognitive events or processes occurring within the minds of specific individuals (e.g., Bhave, 1994; Herron & Sapienza, 1992). Since affect influences several important aspects of cognition and since opportunity recognition is, at least in part, a cognitive process, it seems reasonable to suggest that affect influences this aspect of entrepreneurship. I propose here that such effects may occur in two distinct ways: (1) through the influence of affect on creativity and (2) through possible moderating effects of affect with respect to factors previously shown to strongly influence opportunity recognition. As noted earlier, there is considerable empirical evidence suggesting that affect influences creativity (e.g., Isen, 2000). In general, the findings of previous research suggest that positive affect tends to enhance creativity.1 Creativity, in turn, has been found to be significantly related to opportunity recognition (e.g., Hills, Shrader, & Lumpkin, 1999). Basic research in cognitive science provides further insight into the mechanisms through which positive affect can enhance creativity and, hence, opportunity recognition. Briefly, positive affect encourages what is known as creative cognition—a process in which existing cognitive frameworks (concepts, prototypes, schemas) are expanded or combined so as to suggest new ideas not previously available (e.g., Ward, 2004). The ideas for many new products or services appear to derive from this process. For instance, the idea of cell phones with built-in cameras derives from combining two previously existing concepts (cell phone and camera). In a similar manner, many other new products appear to derive from the expansion or combination of existing cognitive frameworks (Ward, 2004). Taken together, previous research on the role of affect in creativity 1 As stated previously, negative affect, too, can sometimes increase creativity, but only, it appears, under highly specific circumstances (George & Zhou, 2002).
  • 2008 Baron and in creative cognition suggests the following proposition. Proposition 1: Positive affect enhances creativity, thus contributing to the process of opportunity recognition. A second way in which affect may influence opportunity recognition is by acting as a moderator of factors known to influence opportunity recognition. Two such factors are alertness and active search for opportunities. Alertness refers to “unique preparedness to recognize opportunities” when they appear (Gilad, Kaish, & Ronen, 1989: 48; see also Kirzner, 1979). Active search, in contrast, refers to active efforts to identify potential opportunities— untapped sources of potential profit (Hills & Shrader, 1998). Both of these factors have been found to be related to opportunity recognition, and affect may serve as a moderator of each. In essence, alertness involves important aspects of perception— being attentive to and able to identify potential opportunities for new ventures when they appear (Kirzner, 1979). Since affect has strong effects on perception, it seems possible that it moderates the impact of alertness on opportunity recognition. Specifically, positive affect, by broadening individuals’ perceptual fields and increasing their capacity to notice a wide range of events or stimuli (e.g., Matlin & Foley, 2001), may strengthen the influence of alertness on opportunity recognition. In contrast, negative affect, by narrowing individuals’ perceptual fields and reducing their capacity to notice external events, may reduce the impact of alertness on opportunity recognition. Correspondingly, affect may also serve as a moderator of the impact of active search on opportunity recognition. Research findings indicate that positive affect is often an “activator” or “energizer” of behavior, whereas negative affect has opposite effects (e.g., Forgas, 2000). Thus, positive affect may intensify the vigor or scope of active searches for opportunities, thus enhancing the impact of such searches on opportunity recognition. In contrast, negative affect, by reducing the vigor or scope of active searches, may produce opposite effects—a weakening of the impact of this variable (active search) on opportunity recognition. Overall, the reasoning described above suggests the following proposition. 333 Proposition 2: Affect moderates the impact of factors previously shown to influence opportunity recognition (alertness, active search), with positive affect enhancing, and negative affect reducing, the influence of each of these variables. Affect and Acquisition of Financial and Human Resources Affect may also influence the entrepreneurial process through its impact on activities involved in the acquisition of essential financial and human resources. Obtaining such resources is often a crucial step in the launch of new ventures, and the more effectively this step is performed, the more successful such ventures tend to be (e.g., Shane, 2003). Affect (and, in particular, positive affect) may play a role in acquisition of essential resources in two ways. First, positive affect is closely related to demonstrating enthusiasm, and a large body of findings indicate that enthusiasm, in turn, is closely related to persuasiveness (e.g., Terry & Hogg, 2000). In addition, other evidence suggests that emotions are contagious—they tend to spread from one individual to another (e.g., Hatfield, Cacioppo, & Rapson, 1994). Thus, entrepreneurs who express a high degree of positive emotion concerning their ideas and new ventures may be more effective in generating similar positive reactions in investors, customers, potential employees, and others. Because obtaining essential financial and human resources often involves persuading others of the value or potential of a new venture, positive affect may contribute to entrepreneurs’ success in their efforts to secure such resources. Second, positive affect may also contribute to the breadth and quality of entrepreneurs’ social networks—the range and nature of the relationships they have established with other persons (e.g., Nahapiet & Ghoshal, 1998). In general, the more extensive entrepreneurs’ social networks, the more successful their new ventures will be (e.g., Singh, 2000). Recent research (e.g., Ozgen & Baron, 2007; Walter, Auer, & Ritter, 2006) indicates that such networks are the source of many important resources for entrepreneurs—financial, human, and informational (e.g., Adler & Kwon, 2002). Research on the influence of affect supplements these findings by suggesting that
  • 334 Academy of Management Review positive affect enhances individuals’ tendency to seek social contacts with others and that persons who frequently demonstrate positive affect have more extensive social networks than those who frequently experience negative affect (e.g., Lucas & Diener, 2003; Staw et al., 1994). As a result, affect may also influence the acquisition of essential resources by entrepreneurs through this mechanism (e.g., Ireland et al., 2003). Negative affect, by reducing the frequency or quality of social contacts entrepreneurs have with others, may produce opposite effects, reducing entrepreneurs’ access to essential financial and human resources. Combining these considerations suggests the following proposition. Proposition 3: Positive affect may enhance entrepreneurs’ capacity for acquiring essential financial and human resources by contributing to their persuasiveness and by increasing the breadth of their social networks. Negative affect, in contrast, may produce opposite effects. Affect and the Ability to Respond Effectively in Highly Dynamic Environments Typically, entrepreneurs face rapidly changing and highly uncertain environments. As a result, they must be able to respond quickly and effectively to extensive changes in a wide range of external conditions. Affect may play a role in the capacity to respond effectively to such dynamic environments, in several ways. First, research on the influence of positive affect indicates that such feelings are often interpreted by individuals as a sign that “all is going well” and that current situations pose no serious threat or danger. These reactions, in turn, encourage the persons experiencing them to engage in what is known as “broadening and building”—active efforts to expand their repertoires of useful skills and the range of their social networks (e.g., Fredrickson, 2001). These strengthened skills and enhanced social networks may then provide entrepreneurs with an increased capacity for responding effectively to rapidly changing conditions in dynamic environments by arming them with a broader range of functional “tools.” Second, affect strongly influences the decision-making strategies individuals adopt. Making decisions effectively is a crucial task in April many settings, but it takes on added importance under the conditions of high uncertainty, unpredictability, and intense time pressure that entrepreneurs frequently face. Previous research indicates that affect can influence the specific decision-making strategies adopted (e.g., Forgas & George, 2001). Positive affect encourages the use of satisficing—a strategy in which the first acceptable alternative is chosen. This strategy permits the persons using it to make decisions both quickly and efficiently. In contrast, negative affect seems to encourage adoption of a very different strategy, known as maximizing—a strategy involving exhaustive examination of all available alternatives in order to choose the best. Although maximizing often yields superior choices (e.g., Iyengar, Wells, & Schwartz, 2006), it is an approach that may not be feasible for entrepreneurs, who must often make decisions and judgments very quickly. Thus, satisficing may generally be a more appropriate strategy for entrepreneurs to follow. Positive affect may also encourage entrepreneurs to adopt other efficient strategies for decision making in which, for instance, they do not review information they have already considered and largely ignore information that is unimportant or irrelevant (Isen & Means, 1983). Finally, it should also be noted that positive affect tends to encourage flexibility in solving various problems and in thinking generally (Lyubomirsky et al., 2005). This, too, may contribute to entrepreneurs’ capacity for responding effectively in dynamic environments. Together, the findings and considerations summarized above suggest the following propositions. Proposition 4: Affect influences entrepreneurs’ capacity for responding effectively to the highly dynamic environments they face, with positive affect enhancing the ability to respond effectively and negative affect reducing this ability. Proposition 4a: Positive affect enhances individuals’ tendencies to expand both their skills and social network, whereas negative affect reduces or impedes such tendencies. Proposition 4b: Positive affect enhances the adoption of relatively efficient strategies for making decisions
  • 2008 Baron (e.g., satisficing), whereas negative affect enhances the adoption of slower, more thorough strategies (e.g., maximizing). Affect and Entrepreneurs’ Capacity to Tolerate Intense Levels of Stress Entrepreneurs frequently experience intense levels of stress; they work long hours, face intense competition, operate in highly dynamic environments, and often lack sufficient resources to implement their plans and strategies. The findings of basic research on the influence of affect suggest that, in this respect, too, a tendency to experience positive affect may prove beneficial. A large body of evidence indicates that persons who frequently experience positive affect tend to enjoy better personal health than persons who frequently experience negative affect (Lyubomirsky et al., 2005). Further, such research suggests that these benefits derive at least in part from an enhanced capacity to cope with intense and persistent stress (e.g., Carver & Scheier, 2001). Specifically, a propensity to experience positive affect encourages the adoption of effective techniques for coping with high levels of stress, such as attempting to deal with problems directly, rather than seeking to avoid them or to reduce their “sting” through the use of alcohol and other drugs (e.g., Fredrickson & Joiner, 2002). Adoption of effective coping strategies, in turn, enhances the capacity to tolerate even very high levels of stress. In addition, positive affect adds to individuals’ capacity to tolerate stress by promoting efficient functioning of the immune system (Booth 335 & Pennebaker, 2000). While the capacity to tolerate and resist high levels of stress is important in many contexts, it may be especially crucial for entrepreneurs who often work to the point of exhaustion and frequently stretch their own resources to the limit. These considerations point to the following proposition. Proposition 5: Positive affect enhances the capacity to tolerate high levels of stress, and this, in turn, may have beneficial effects on the health and wellbeing of entrepreneurs. It should be noted again that this discussion is in no sense exhaustive. Rather, it is intended to be indicative of the broad range of effects affect may have on the cognition and behavior of entrepreneurs. Figure 1 presents an overview of the effects described. CONCLUSIONS AND IMPLICATIONS The logic underlying the framework presented in this paper can be summarized as follows: (1) affect influences many aspects of cognition and behavior; (2) such effects may be especially likely to occur in the domain of entrepreneurship, because the environments in which entrepreneurs operate are unpredictable and uncertain and because affect influences many of the tasks entrepreneurs perform in launching new ventures; and (3) through its influence on cognition, affect may have important effects on key aspects of the entrepreneurial process—for instance, opportunity recognition, success in acquiring needed resources, and the capacity to respond effectively in highly dynamic environ- FIGURE 1 Theoretical Model of the Role of Affect in Entrepreneurship
  • 336 Academy of Management Review ments. The framework developed in this paper reflects this reasoning and is based on a large body of research in several branches of management and cognitive science (e.g., George & Brief, 1996; Lyubomirsky et al., 2005). This framework and the propositions it suggests offer several potential contributions to the field of entrepreneurship. First, the present framework has implications for efforts to investigate entrepreneurial cognition—a very active area in the field of entrepreneurship (e.g., Busenitz & Arthurs, 2006; Mitchell et al., 2004; Krueger, 2003). As noted earlier, affect and cognition interact in an intimate and continuous manner (e.g., Forgas, 2000; Isen, 2002), and this interaction is visible even at basic levels of brain functioning (e.g., Cohen, 2005). As a result, it seems essential to include affect and its interface with cognition in ongoing efforts to investigate entrepreneurial cognition. The framework I present here, by encouraging attention to affect and its interaction with cognition, may facilitate progress toward this goal. Another potential contribution of this framework involves its value in addressing a basic issue in the field of entrepreneurship: the question of how variables pertaining to the characteristics, skills, motives, and actions of individual entrepreneurs (i.e., microlevel variables) ultimately influence various aspects of new venture financial performance (e.g., firm growth in sales, profits, employment). As noted by Baum and Locke (2004), microlevel variables related to the motives and characteristics of individual entrepreneurs are distal from macrolevel measures of firm performance, yet there is growing evidence that microlevel variables are related to these outcomes (e.g., Ciavarella, Bucholtz, Riordan, Gatewood, & Stokes, 2004). The present framework helps to resolve this complex issue by suggesting that affect may be one potential mediator between individual-level and macrolevel variables. Specifically, several microlevel variables that have been the focus of much recent research in entrepreneurship (e.g., optimism, extraversion, self-efficacy, passion; Zhao, Seibert, & Hills, 2005) may influence entrepreneurs’ propensity to experience positive affect. Since positive affect can facilitate opportunity recognition, acquisition of required resources, and entrepreneurs’ capacity to respond effectively in highly dynamic environments, constru- April ing affect as a potential mediating variable may help to bridge the gap between the characteristics, skills, motives, and abilities of individual entrepreneurs and measures of new venture financial performance. The framework presented here suggests such a mediating role for affect, and if this suggestion is confirmed in future research, this, too, would constitute a useful contribution to the field of entrepreneurship. Having noted the potential benefits of positive affect for several aspects of the entrepreneurial process, it is important to call attention to the potential downside of positive affect and to strongly counter any suggestion—perhaps implicit in previous discussions in this paper—that the effects of positive affect are uniformly beneficial. Previous research, in fact, suggests that positive affect may prove detrimental to entrepreneurs and their efforts to launch new ventures, in several different ways. First, strong affective reactions can lead entrepreneurs to prematurely accept potential business opportunities and to proceed with the development of these apparent opportunities even in the absence of a systematic feasibility analysis. Briefly, the affect-as-information mechanism described above can lead entrepreneurs to conclude that any opportunity to which they respond very favorably (i.e., with intense positive affect) must be very good. This, in turn, may lead to premature closure with respect to the search for suitable opportunities and to acceptance of opportunities that are, in fact, not optimal for particular entrepreneurs (given their particular array of skills, experience, and motives) to develop (e.g., McMullen & Shepherd, 2006). Second, positive affect has been shown to increase susceptibility to various cognitive errors or biases— errors that can prove quite costly to entrepreneurs and their new ventures (e.g., Baron, 2004; Busenitz & Arthurs, 2006). Such errors include the optimistic bias—a tendency to expect positive outcomes and events (e.g., Busenitz & Barney, 1997; Simon, Houghton, & Aquino, 2000)—and the planning fallacy—a tendency to assume that more can be accomplished in a given period of time or that tasks can be completed sooner than they actually can (e.g., Buehler, Griffin, & Ross, 1994). Increased susceptibility to these and other cognitive errors can be potentially damaging for new ventures.
  • 2008 Baron Third, positive affect, by strongly influencing memory through the mechanisms described earlier, may lead entrepreneurs to recall primarily information consistent with such favorable reactions. This biased sample of recalled information, in turn, may lead to serious errors in judgments and decisions. In sum, although a propensity to experience positive affect provides several important benefits, it also poses significant risks that should be recognized and carefully weighed in the balance. Having clarified this important point, it seems appropriate to emphasize the following thought: neither positive nor negative affect plays a uniformly beneficial or detrimental role in the entrepreneurial process. The effects of both are far too complex to afford the luxury of simple or straightforward conclusions. However, it is a central premise of this paper that affect, because of its pervasive effects on many aspects of cognition and behavior, does indeed influence key aspects of the entrepreneurial process. Consequently, careful attention to the potential influence of affect may assist scholars in the field of entrepreneurship in addressing several important questions (e.g., the nature of entrepreneurial cognition, how microlevel variables can influence macrolevel measures of new venture success). Since affect has been a topic of growing interest in other branches of management, increased attention to it may also encourage closer conceptual ties between entrepreneurship and these fields (George & Brief, 1992; Isen & Labroo, 2003; Weiss et al., 1999). In sum, including affect as a variable of interest in ongoing entrepreneurship research may contribute to the development of the comprehensive theoretical frameworks that entrepreneurship scholars, like scholars in all other branches of management science, actively seek. In this respect, the words of British novelist Arnold Bennett seem applicable and may, in fact, offer sound advice for researchers seeking to understand the complex process through which new ventures are conceived, launched, and developed: “There can be no knowledge without emotion. We may be aware of a truth, yet until we have felt its force, it is not ours. To the cognition of the brain must be added the experience of the soul” (Bennett, 1954). 337 REFERENCES Adler, P. S., & Kwon, S. W. 2002. Social capital: Prospects for a new concept. Academy of Management Review, 27: 17– 40. Ardichvili, A., Cardozo, R., & Ray, S. 2003. A theory of entrepreneurial opportunity identification and development. 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  • 340 Academy of Management Review April experiences over time. Organizational Behavior and Human Decision Processes, 78: 1–24. tive worker thesis. Journal of Organizational Behavior, 20: 1–23. Willingham, D. T., & Dunn, E. W. 2003. What neuroimaging and brain localization can do, cannot do, and should not do for social psychology. Journal of Personality and Social Psychology, 85: 662– 671. Zacs, Z. A., & Audretsch, D. B. (Eds.). 2003. Handbook of entrepreneurial research. London: Kluwer Academic. Wright, T. A., & Staw, B. M. 1999. Affect and favorable work outcomes: Two longitudinal tests of the happy-produc- Zhao, H., Seibert, S. E., & Hills, G. E. 2005. The mediating role of self-efficacy in the development of entrepreneurial intentions. Journal of Applied Psychology, 90: 1265– 1272. Robert A. Baron ( is Wellington Professor of Management at Rensselaer Polytechnic Institute. He received his Ph.D. from the University of Iowa. His research focuses on cognitive and social factors in entrepreneurship; he holds three U.S. patents and started and ran two companies.