May 19, 2024 

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KEMP-ROTH ACT: Officially titled the Economic Recovery Tax Act of 1981, this was a cornerstone of economic policy under President Reagan. The three components of this act were: (1) a decrease in individual income taxes, phased in over three years, (2) a decrease in business taxes, primarily through changes in capital depreciation, and (3) the indexing of taxes to inflation, which was implemented in 1985. This act was intended to address the stagflation problems of high unemployment and high inflation that existed during that 1970s and to provide greater incentives for investment. A primary theoretical justification is found in the Laffer curve relation between tax rates and total tax collections.

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A preference for changing the status quo over maintaining it based on relatively greater satisfaction generated by novel information over redundant information. Entrepreneurial behavior underlies the inclination to undertake invention and innovation, including the creation of something new as well as the distribution and adoption of the new throughout society. It is the behavior most likely exhibited by entrepreneurship. An alternative is managerial behavior, which is a preference for maintaining the status quo over changing it.
Entrepreneurial behavioral is one of two behavioral alternatives underlying the desire to undertake innovations and to change the status quo. The other is managerial behavior. Entrepreneurial behavior embraces innovation, is motivated to seek changes in the status quo, draws satisfaction from institutional changes. In contrast, managerial behavior is a preference for maintaining the status quo.

The underlying source of entrepreneurial behavior is a relative preference for novel information over redundant information. Both types of information are important to the fight or flight response to a threat. Novel information reveals potential threats that results in automatic physiological responses, which is more satisfying to some than it is to others.

Entrepreneurial behavior is a preference for innovation and a change in existing institutions and the status quo. It can be as simple as the willingness to buy a new electronic gadget or as involved as rebelling against the existing political regime and starting a new nation. It often surfaces in the form of an entrepreneur undertaking the risk of organizing production and launching a new business venture.

Fight or Flight

An understanding of entrepreneurial behavior requires a look at the fundamental, physiological response to potential threat, what is called fight or flight. The human body automatically prepares itself to fight off a potential threat to flee away from it. Respiration increases. Pupils dilate. Brain wave activity increases. Adrenalin is pumped through the body. Heart rate increases. The human body is primed and ready to recognize the threat and to respond.

The key to this automatic response is achieved by distinguishing between what's new and different and what's old and familiar. The old and familiar is less threatening that the new and different. The human brain sorts between two different types of information that comes through the five senses (sight, hearing, touch, taste, and smell), attempting to discern the potential for danger -- novel information and redundant information.

  • Novel: This is new information. An unusual sight. A strange sound. An unexpected touch. A bizarre taste. An uncommon smell. The human brain takes immediate note of this information. Because it is unfamiliar, it might be threatening. This is information that needs to be identified quickly. It needs to stand out from the ordinary and familiar. A self-preservation reaction (fight or flight) might be needed.

  • Redundant: This is familiar information. A common sight. A routine sound. A ordinary touch. A recognized taste. An everyday smell. The human brain is wired to largely ignore this information. Because it is familiar, it is not threatening. It is the background canvas upon which novel information is displayed.
Redundant and novel information are both intrinsically satisfying. A little bit of excitement is satisfying (think a roller coaster ride). But so too is a little bit of piece and quiet (think resting after a hectic vacation). However, nothing but redundant information is incredibly boring and not particularly satisfying. And nothing but novel information is anxiety inducing, and also not very satisfying. Too much of one or the other is not a pleasant situation. A combination of the two is most enjoyable. It can maximize satisfaction.

However, different people have different preferences over the proper mix of novel and redundant information. Some prefer relatively more new and less old. Others prefer relatively more old and less new.

These individual differences give rise to entrepreneurial and managerial behavior. Those who prefer relatively more redundant information and relatively less novel information tend to pursue managerial behavior. Others who prefer relatively more novel information and relatively less redundant information tend to pursue entrepreneurial (and innovative) behavior.

A Preference for Change

Entrepreneurial behavior is a preference for changing the status quo over maintaining it. Entrepreneurial types embrace innovation. A change in institutions generates satisfaction for the entrepreneurially inclined. Keeping things structured and orderly is not nearly as satisfying. Entrepreneurial behavior has a relative preference for novel information over redundant information.

Entrepreneurial behavior surfaces in a number of ways throughout society:

  • Entrepreneurship: One notable manifestation of entrepreneurial behavior is entrepreneurship, the scarce resource that undertakes the risk of organizing production. In many cases, not all but many, entrepreneurs are motivated by the desire to produce something new, to change the status quo. Entrepreneurship might be engaged in the innovation of a new product. It might be utilizing a different method of production or marketing. However, it's also possible that the entrepreneur is doing nothing more than launching a new business to sell an existing product using existing production techniques. Nothing new, nothing novel, no change in the status quo.

  • Innovation: Entrepreneurial behavior is also key to innovation, the process of applying and disseminating new products, ideas, and institutional changes throughout society. The entrepreneurial desire for change goes hand in hand with the innovation process. It's seen both with those who initially launch the innovations (the sellers) as well as those who are first to adopt the innovations (the buyers). Both sides need the inclination to change the status quo to be part of the innovation process.

  • Invention and Creation: The starting point for most innovation is invention, the act of creating the something new. The invention is perhaps the purest form of entrepreneurial behavior. Creating something new just for the sake of creating something new. The act of invention includes the standard creation of a new product (think a device that automatically ties your shoe strings), as well as the creation of a new idea, scientific theory, painting, poem, song, novel, computer program, or video game. Many artists, writers, musicians, and computer programmers have a strong entrepreneurial inclination.

  • Fashion Trendsetters: Another common example of entrepreneurial behavior is those at the forefront of the latest fashions and fads. Trendsetters are commonly motivated by the desire for change, the need to be different, the inclination to break away from the status quo. The fashion in question is not just clothing, but also includes home furnishings, automobiles, electronic gadgets, and entertainment, to name a few.

  • Political Revolution: Changes in existing social and political orders are perhaps among the most historical manifestations of entrepreneurial behavior. The creation of the United States in the late 1700s is a prime example. So too is the Russian revolution of the early 1900s. The revolutionaries behind both, and many others, exhibited a significant amount of entrepreneurial behavior.

  • Life: Entrepreneurial behavior also surfaces in assorted nonspecific actions that make up daily life. The desire to periodically take a new route to work is an example. Another is the compunction to rearrange furniture. A third example is to occasionally try a different restaurant or sample a new cuisine. The changes can be seemingly trivial parts of an otherwise unchanging status quo life.

The Managerial Alternative

The alternative to entrepreneurial behavior is managerial behavior. Managerial behavior is a preference for maintaining the status quo over changing it. Managerial types resist innovation. A change in institutions does not generate satisfaction. On the contrary, satisfaction is best achieved from keeping things structured and orderly. Managerial behavior displays a relative preference for redundant information over novel information.

This behavioral alternative is well suited for keeping an existing business running smoothly and efficiently. As the name suggests, managerial types are inclined to manage, to administer, to apply existing rules and procedures. They are not absolutely opposed to change, but the change needs to be orderly and within the rules.

While managerial behavior is not conducive to creating an invention or launching an innovation throughout society, once the innovation has taken hold and becomes part of the fabric of society, it takes hold. It promotes the now "old" innovation, getting the most benefit possible. Those who are managerial inclined might not favor product innovations (new products), but process innovations (new ways of making existing products) are acceptable.

A Continuum

Like much of life, the inclination toward managerial or entrepreneurial behavior is seldom one or the other. Most people have a combination of each and few exhibit either in the extreme or in all aspects of their lives. One person might be entrepreneurial in business, but managerial at home. Another person might be just the opposite. Each might fulfill the desire for in one activity, then be satisfy with the status quo in other activities.


Recommended Citation:

ENTREPRENEURIAL BEHAVIOR, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2024. [Accessed: May 19, 2024].

Check Out These Related Terms...

     | behavioral alternatives | managerial behavior | innovation | novel information | redundant information | institution | innovation profit | technology | process innovation | product innovation |

Or For A Little Background...

     | entrepreneurship | risk | scarce resources | rational behavior |

And For Further Study...

     | economics of information | economics of uncertainty | risk preferences | alternative business cycles | creative destruction | good types | public goods | innovation and entrepreneurship | political views |

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