In this setting, venture capitalists must categorize
incoming funding requests into those that
are more or less attractive. Applicable theories
from cognitive science include prototype theory
and cue validity. Prototype theory explains the
likelihood that a particular object or description
will be readily classified into preexisting mental
categories. This classification allows for the
‘induction of invisible features’ when such objects
or descriptions are not exact replicas of previous
instances (Kruschke, 2005). However, subtle
differences in objects can generate larger differences
in meaning. For example, in a seminal work,
Rosch (1975) finds that ‘chair’ invokes the cognitive
category ‘furniture’ with greater salience
than does ‘table.’ Similarly, subtle differences
between planning documents may trigger distinct
reactions among potential investors. Prototype theory
implies that venture capitalists will infer differences
in underlying quality based upon easily
observed characteristics of funding requests.
Shepherd (1999), for example, argues that cognitive
cues facilitate decision making among venture
capitalists.