There is nothing more practical than a good theory to make strategic decisions: evidence from field experiments in developed and developing countries

A theory-based approach to strategic decision-making under uncertainty recommends decision-makers and entrepreneurs to formulate a theory behind their decision problems and to follow a structured framework to make decisions. Theoretical reasoning should enable actors to generate more comprehensive representations of the world, ground hypothesis testing in a clear framework, identify causal mechanisms and better interpret results from experimentation efforts. However, despite the abundance of theoretical research, limited empirical evidence of the effectiveness of such systematic approach to decision-making is available. Most of the evidence in entrepreneurial settings focuses on decision outcomes and performance, with few papers investigating mechanisms or intermediate outcomes that can affect the decision-making process. This thesis contributes to the stream of research on theory-based approaches in entrepreneurial decision-making, and more generally to the literature about decision-making under uncertainty, by 1) proposing novel theoretical arguments for the channels through which a theory-based approach improves decision outcomes; 2) providing novel empirical evidence on the matter leveraging three distinct field experiments conducted with entrepreneurs in both developed and developing countries, the latter being a context widely understudied in the strategy literature. Particularly, the three chapters are devoted to the examination of entrepreneurs’ perceptions and their ultimate connection to outcomes, analyzing whether and how they are affected by the application of a theory-based approach to decision-making. Entrepreneurs’ perception of their ideas, the environment in which they act, as well as self-perceptions in relation to that environment are important mechanism that despite their importance for decision-making processes have not been widely studied yet in the literature. The goal of this thesis is to disentangle the effects that following a theory-based approach has on different dimensions of entrepreneurs’ perceptions and ultimately on business outcomes. Each chapter studies different aspects of the decision-making process and different types of perceptions. The first chapter develops a theoretical framework explaining how a theory-based approach affects entrepreneurs’ perceptions of their projects’ value, and how this change in perceptions leads to a better selection process with respect to entrepreneurs not following a structured approach to decision-making. Results also show how this process ultimately results in better business outcomes for entrepreneurs following a theory-based approach. The second chapter compares again these two groups of entrepreneurs, focusing on pivoting activities and business model changes. Results show how entrepreneurs following a theory-based approach introduce changes that are more customer-centric, and how this leads to a different update process on their beliefs about project’s value and related uncertainty. The third chapter leverages the unique setting of an emerging economy, Tanzania, to study entrepreneurs’ perceptions of ability to deal with potential challenges to business development and how they relate to performance and uncertainty perceptions. Results show how entrepreneurs trained to follow a theory-based approach perceive themselves as better able to deal with potential challenges when compared to entrepreneurs trained with a structured approach solely based on experimentation, ultimately isolating the positive spillovers related to the theoretical element of decision-making.