This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Journal: Microeconomics
  4. Forthcoming Articles
  5. Aggressive Pivots and Entrepreneurial Skill

Aggressive Pivots and Entrepreneurial Skill

  • Xuelin Li
  • Martin Szydlowski
American Economic Journal: Microeconomics (Forthcoming)

Abstract

We study pivots as signaling devices in a dynamic experimentation model. An entrepreneur receives funding from an investor and has private information about a project, which requires costly experimentation to succeed. The entrepreneur has a real option to pivot, i.e. to abandon the project and to start a new one. Investors learn about the project from the arrival of exogenous information and from the entrepreneur’s pivoting decisions. We characterize signaling equilibria in which high skill entrepreneurs pivot early. Such early pivots are associated with higher likelihood of success and with more favorable funding terms following the pivot.

Downloads