The Empowerment–Entrapment Paradox of Generative AI in Entrepreneurship: Diminishing Returns of GenAI Use for Entrepreneurial Judgment and Venture Performance

Abstract

Generative artificial intelligence (GenAI) is rapidly transforming entrepreneurial practice, but its implications for founders' decision-making capabilities are not well understood. The study examined the nonlinear relationship between the intensity of GenAI use and entrepreneurial judgment quality and the subsequent relationship between judgment quality and new venture performance. Drawing on cognitive offloading theory and entrepreneurial judgment under uncertainty, we argue that GenAI initially provides cognitive augmentation but its marginal association with judgment quality diminishes as usage intensifies. We use two-wave survey data from 212 technology venture founders who adopted GenAI, and estimate hierarchical polynomial regressions with HC3 heteroskedasticity-consistent standard errors. Results suggest a significant concave association between intensity of GenAI use and quality of entrepreneurial judgment (b = −0.09, p < 0.05), consistent with diminishing marginal returns, but because the estimated extremum falls outside the observed 1–7 range and the upper-bound slope is not significantly different from zero, these data do not establish a full inverted-U relationship within the range of GenAI use observed. Entrepreneurial judgment quality is positively associated with venture performance (b = 0.29, p < 0.001), though because judgment and performance were measured concurrently, this association should not be interpreted causally. Founder technical expertise is associated with a significantly weaker negative curvature (X²×W: b = 0.09, p < 0.05), suggesting technical expertise may buffer against diminishing returns at high usage, though this interaction should be interpreted with caution given the sample's limited power to detect small interaction effects. Conditional indirect associations through judgment quality decline with increasing GenAI use and are weakest among low-expertise founders, becoming marginally negative though not statistically significant at the highest usage levels. The findings suggest that the entrepreneurial value of GenAI depends not simply on adoption but on the extent to which intensive use is integrated with independent human judgment.

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