Research On Venture Capitalists' Expertise In Decision Making

Expertise is an important issue in psychology. In this paper, the author retrospected the trajectory of research on expertise, and comparedthe difference between expert and novice VCs' decision-making from the viewpoint of expertise in solving ill-structured problem, and discussed the relationship between VCs' knowledge and decision-making. The authorconstructed a cognitive model of VCs' decision-making which consists ofthree parts: knowledge and opinion, selection of information and inference, the final decision.The finding indicates that VCs' expertise is exhibited in all aspectsof the model. VCs' knowledge and opinions guide their informationselection and inference. They not only acquire information from the project of venture investment, but also retrieve knowledge from their long-term memory to complement the insufficiency of information during their decision-making process.The difference between experts and novices is manifested as follow:First, experts' knowledge is richer than novices', and classified in more dimensions. Experts' knowledge is more closely related to the realdecision process, and can be retrieved automatically. Novices' knowledge is simpler and static, which is classified in a dimension.Second, Experts' attitude toward risk and preference to industry orproduct is not significantly different from novices'. The mostsignificant difference is exhibited in their opinion on venture investment. For example, experts think that venture capital should be invested during the seed period. Although that means higher risk, once succeeds, it will bring more profits. Those ventures that own maturedtechnology should not seek venture investment, but apply for loan from banks, while novices think that venture capital be invested in those matured technology to reduce risk.Third, Experts use their existed knowledge to make inference and utilize less information to draw their conclusion quickly, while novices make their decision step by step concerning all kinds of information. In other words, experts adopt heuristics or intuition strategy, while novices algorithm or analysis strategy.Forth, experts always reject some projects decisively, but it is hard for novices to reject any. They always wait for more information to draw a conclusion. As for how to deal with the risk, experts emphasis thestrategy of the enterprise' development, while novices adopt some specific methods to control the risk.In all, experts' decision process is significantly different fromnovices', due to the difference of their knowledge and experience. Knowledge is utilized in the whole decision process, thus, in decision tasks under uncertainty such as VCs' decision-making which involves richprofessional knowledge, decision-makers' knowledge contributes most to their decision strategy.