Risk-taking is a fundamental aspect of entrepreneurship, and prospect theory (PT) has been widely applied to explain entrepreneurs’ risk-taking behavior. However, research does not fully understand the process associated with the magnitude of reference point adaptation following gains or losses. This study aims to address this gap and extend the boundary conditions of PT by proposing that entrepreneurs will differ in the extent to which they adapt their reference points following gains or losses, and that individual-level traits will influence the magnitude of reference point adaptation. We also hypothesize a moderating influence of self-esteem and locus of control on the magnitude of reference point adaptation by entrepreneurs following a loss or gain respectively. Through two experiments, we find support for the proposed theoretical model.
