Attractive Opportunities: How Business Angels Are Biased by Beauty

Abstract

Like any decision-making process, business angels are susceptible to biases in early-stage investment decisions. This research investigates the role of the beauty premium biasing this decision by introducing mediation effects of attractiveness through criteria typically assessed by business angels. Prior research shows deviance from expected results based on key work on beauty premiums and physical attractiveness. By exposing the underlying mechanisms through which attractiveness influences the process of acquiring funding for entrepreneurial ventures, this research aims to explain this dissonance. Using data acquired from an online experiment on investors, we analyze investor behavior using main effects models, multiple regression and causal mediation analysis. This research finds that the beauty premium only exists for female entrepreneurs, that this female beauty premium only influences the initial decision to invest or not and can help in closing observed gender gaps in entrepreneurship. No evidence can be identified for biasing of the amount invested or the existence of a male beauty premium, inconsistent with the results of previous research. These findings can be explained by characteristics of investor ‘gut feel’ and the context specifity of the beauty premium, as well as dual processing theories.