Economic Rationality-based Entrepreneurial vs. Employee Orientations byEntropy, Updating and Error Rates Computing: Evidence of Kenyan CreditUnions

Unemployment is one of the greatest concerns of economies. Strong advocacy for entrepreneurship development by way of creating an enabling environment for funding entrepreneurs to start own businesses and training to ensure sustainability is an international objective. This paper contrasts financial decision making orientations for credit union entrepreneur members and credit union employee members of Unitas and Stima credit unions respectively who share the same return on assets. Three objectives were pursued. First was to establish that higher entropy does not necessarily result into a higher rationality level. Secondly, the paper set out to show that a low error rate is an important factor that leads to higher rationality levels, which results to better financial performance. Finally, it sought to establish that updating rate is critical to long run financial performance. A 9-point Likert longitudinal data for 2005 and 2015 was collected and converted into probabilities. Since the probabilities are subjective, cumulative prospect theory decision weights function was used to transform them into objective probabilities, and then fitted into a multi-period Bayesian rationality model. Unitas members with less than half the potential of Stima members and a lower rationality starting point catch up with Stima members within the 10 years. Stima’s endowment of a lower updating period did not give it any advantage. The single all important factor is the updating rate, which worked in favor of Unitas credit union members. The paper recommends that entrepreneurial union members should be supported more by the government to accelerate wealth creation, hence job creation.