Daniel Kahneman is a faculty member at Princeton University and a fellow at Hebrew University. He is the winner of the 2002 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel (erroneously known as the Nobel Prize in Economics), despite being a research psychologist and not an economist. Along with Amos Tverski, he has developed the so called "prospect theory" . On important feature of prospect theory is loss aversion.
According to Wikipedia, loss aversion refers to the tendency for people to strongly prefer avoiding losses than acquiring gains. Some studies suggest that losses are as much as twice as psychologically powerful than gains.
In a YouTube video, Daniel Kahneman gives his thinking on loss aversion. What is quite interesting is the point he makes on the difference between knowing the odds and not knowing them. When you toss a coin, you know the odds. When you innovate, fairly good chances, you don't know the odds.
When people don't know the odds, loss aversion disappears. People, according to Kahneman, behave optimistically. They are no longer shying away. They even tend to be overoptimistic.
That is what makes entrepreneurs a different kind of people: If they really knew the odds, they would never start in the first place! It seems, though, that venture capitalists are precisely those who want to know the odds and, above all, price them (business plans, Powerpoint presentation, valuation...). This may explain why they are so loss averse.
What is even more troubling though is how, despite my friend Nassim Taleb's writings, people, especially managers, can be fooled by randomness. They often take for genuine skills what is purely the output of luck. Think of portfolio managers claiming to outperform the market (do you really believe them given how many of them started the same rat race in the first place?), of CEOs loaded with stock options who were fortunate enough (few years ago) to see them end up in the money (see what happens when the stock market plummet, stock options are under water, does this mean that this time CEOs lack relevant skills or lost them?) etc...
Not knowing the odds is another way of saying that anything can happen. So, the first quality of an entrepreneur, apart from being an optimist à la Kahneman, is recognizing that systematically disentangling skill from luck is not worth the effort. What matters is the ability to define a business that does take advantage of luck, that is serendipitous, that improves through tinkering.
If you happen to be successful in the course of doing so, I will not blame you if you let others praise your skills.
But please don't let them fool you and others for too long!