Entrepreneurial alertness and asymmetric information in a spin-glass model

The purpose of this article is to investigate the relative role played by alertness and asymmetric information on entrepreneurial decisions. The article presents a model in which an individual decides whether to become an entrepreneur based on her alertness and on the information available in her environment. Spin-glass simulations are used to illustrate the dynamics of the decisional process. According to the results, more alert agents have higher probabilities of exhibiting entrepreneurial behavior. However, if information is evenly distributed, the number of entrepreneurs is shown to remain low even when agents are highly alert. If, on the other hand, information is not evenly distributed, entrepreneurship is shown to increase and concentrate geographically. These results are consistent with observed clustering of entrepreneurial activity. In addition, entrepreneurship is identified as a path-dependent phenomenon. As a result, the model suggests that certain political and institutional settings are more conducive to entrepreneurship than others and implies that short-term policies aimed at increasing the prevalence of entrepreneurship are likely to be ineffective.