How to spot future entrepreneurs by their economic intuitions

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GERARDO L. LARGOZA

GERARDO L. LARGOZA

LAST year, a couple of ex-colleagues who now run a curriculum development outfit came to me with an interesting problem: how to measure the entrepreneurial aptitude of Grade 10 students to see who might be good candidates for the Entrepreneurship strands now available in Senior High School as a result of K-to-12.

A test like this is more useful than you might think. A forthcoming country report we prepared for the Global Entrepreneurship Monitor confirms what many have suspected for some time: there is no shortage of motivation or self-belief for an entrepreneurial career among our youth. Yet, data on small-business failures and career exits are sobering, even for those of us who believe one must fail often before succeeding. As with any undertaking requiring significant sunk resources, it is worth separating the truly talented from the merely optimistic, and the apt from the merely enthusiastic.

I found it most interesting working within the testing parameters. First, what’s being measured is aptitude, not achievement. You can’t just test students on what they learned in Grade 10, you’ve got to measure their innate talent for entrepreneurship, talent they can further develop in Grades 11 and 12. Second, the test must involve some reasoning. This might seem obvious until you realize that the majority of tests for entrepreneurial aptitude out there are psychological, not analytical. Here’s a typical item (from Tjan, Harrington & Hsieh, 2012): My friends would be more likely to say (a) It’s important that I do something meaningful (b) I have above-average vision and passion (c) I distinguish myself for my love for what I do. Yet we will need more than psychological profiling as Entrepreneurship under K-to-12 is a course of study.

Finally, any test to be taken by tens of thousands must consider the practical burden of marking. So we had to use multiple choice even if we all know entrepreneurial decisions are so often driven by context.


My approach was to formulate questions that test student intuition about how markets work and how important efficiency is to them. Mind you, this isn’t a test of terms like elasticity or opportunity cost, etc. It’s a test of whether students would make economically sound decisions when faced with ordinary small-business situations . . . even if they can’t explain why formally.

The items I submitted are, of course, proprietary, but here are a couple of items to give you a flavor:

If someone told you to store your money in a safe place, which of the following would best summarize your feelings: (a) It’s a good thing because it will be saved (b) It’s not such a good thing because it’s not growing (c) It’s a good thing because no one will find it (d) It’s not such a good thing because it means I can’t spend it.

You spent P10,000 to set up a business and earned P14,000. Today you found out you could have earned P15,000 had you gone into some other business instead. Which of the two best summarizes your feelings: (a) I feel bad missing out on the chance to earn P1,000 more (b) I feel all right; at least I earned P4,000 in profits.

In each case, which do you think a talented future entrepreneur would pick? You might recognize the well-established principles in microeconomics that have been adapted into an entrepreneurial setting, sans the jargon that throws students (and many adults) off.

Economic theory gets a bad rap from those who think “theory” is some fragile thing that can be easily debunked by one’s or someone else’s “experience”. Well, there are all sorts of theories and all sorts of experiences. The wise learner consumes them both, and carefully. We economics professors don’t always do such a convincing job of it, but if this exercise has taught me anything, it’s that the best theories are also eminently practical.

Dr. Gerardo L. Largoza is an associate professor at the DLSU School of Economics. His work is in behavioral and experimental economics, but in the last two years, he has been part of a team that has produced the Philippine Report of the Global Entrepreneurship Monitor. GEM is a consortium-led study that examines total “Early-Stage Entrepreneurial Activity” via surveys and expert interviews in over 70 countries.

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1 Comment

  1. I’m happy that such initiative has been taken vigorously by the private sector. Hopefully, more initiatives would come up to push the findings of the Report into fruition.