The discovery of entrepreneurial opportunities

In this chapter, I examine the discovery of entrepreneurial opportunities. The first section of the chapter examines the theoretical world in which entrepreneurial opportunities do not exist because the price system equilibrates supply and demand. By setting up the counterpoint of the price system, I can explain why this system cannot allocate resources for entrepreneurial opportunities, and make clear the nature of entrepreneurial decision-making. The second section of the chapter examines how people make decisions about entrepreneurial opportunities, focusing on how this decision-making process differs from the optimizing process that is used to make non-entrepreneurial decisions. The third section explores the role of individual differences in the discovery process. THE PRICE SYSTEM To understand the existence of entrepreneurship, it is best to begin with a theoretical world in which entrepreneurship does not need to exist and then examine the conditions under which that world breaks down. Textbook economic theory explains that the price system is valuable because prices contain all of the information from all participants in the economy needed to allocate resources (Hayek, 1945). Because prices in the textbook world contain all necessary information for resource allocation, people can make decisions about the allocation of resources through mechanical application of mathematical decision rules. People optimize the information contained in prices by selling when prices go up, and buying when prices go down, until the economy achieves equilibrium. When equilibrium is reached, people then have no reason to change their approach to buying or selling goods and services because no…

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