Limitations of behavioral finance theories in the context of entrepreneurial finance

The aim of this paper is to evaluate the newest developments in the discipline of entrepreneurial finance and compare and contrast the weaknesses of behavioral finance theories applied in that context. These theories, including but not limited to, Informational Asymmetry, Prospect and Agency Theories are analyzed in the backdrop of the three central decision problems identified in Entrepreneurial Finance. Moreover, the authors’ interpretation of the Principal-Agent incentive problem reveals an inadequate treatment of this relationship in the current theoretical framework, especially with regards to risk and uncertainty. The authors attempt to introduce some hybrid concepts developed in conjunction with Cognitive Theory and demonstrate a need for the further exploration of behavioral applications and known heuristics in the field of Entrepreneurial Finance.