Trust Cognition of Entrepreneurs’ Behavioral Consistency Modulates Investment Decisions of Venture Capitalists in Cooperation

Abstract Previous studies have established that venture capitalists (VCs) adjust their investment decisions according to the economic outcome of their cooperation with entrepreneurs. However, investment decisions made by VCs are embedded in social interaction and influenced by information from third parties. Therefore, research studies on interpersonal trust in the disciplines of economics, psychology and neuroscience were integrated in this paper to explore how the trust cognition of VCs in entrepreneurs’ behavior consistency affects their investment decision-making. First, behavioral consistency is the criterion used by VCs to assess the credibility of entrepreneurs. Second, a trust game was designed for VCs and entrepreneurs, during which EEG (electroencephalogram) of the VCs was recorded. Finally, a learning model was developed on each participant’s behavior and showed the process of investment decision-making. The results indicated that investment decisions of VCs are significantly affected by trust cognition and rewards of cooperation, VCsʼ investment decisions are guided by their trust cognition in the behavioral consistency of entrepreneurs and investment experiences have a significant impact on investment decisions when VCs are cooperating with entrepreneurs with a moderate level of behavioral consistency. One explanation for these findings may be a result of the fact that the neutral information is ambiguous and uncertain; thus, VCs preferred to rely on the outcome of cooperation to adjust their investment decisions.