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Attitudes toward risk and self-employment of young workers

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  • Ahn, Taehyun

Abstract

A high degree of risk tolerance is often regarded as one of the fundamental characteristics of entrepreneurs. Using multiple responses on risky income gambles in the 1979 National Longitudinal Survey of Youth (NLSY79), I investigate the effect of individual risk tolerance on the probability of entry into self-employment. I construct a measure of individual level of risk tolerance that is corrected for reporting error and that varies with age and other covariates that potentially affect self-employment decision. I find that risk tolerance is an important determinant of the decision to enter self-employment. However, I find that the estimated effect of risk tolerance on the probability of entering self-employment is dramatically understated if measurement error is not taken into account. In addition, I find that that accounting for the correlation between risk tolerance and other covariates is important to correctly assess the effects of the other determinants of self-employment while it has a trivial effect on the estimated marginal effect of risk tolerance.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 2 (April)
Pages: 434-442

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Handle: RePEc:eee:labeco:v:17:y:2010:i:2:p:434-442

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Risk tolerance Self-employment Entrepreneurship;

References

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Citations

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Cited by:
  1. Matthias Brachert & Walter Hyll, 2014. "On the Stability of Preferences: Repercussions of Entrepreneurship on Risk Attitudes," IWH Discussion Papers, Halle Institute for Economic Research 5, Halle Institute for Economic Research.
  2. Simoes, Nadia & Moreira, Sandrina B. & Crespo, Nuno, 2013. "Individual Determinants of Self-Employment Entry – What Do We Really Know?," MPRA Paper 48403, University Library of Munich, Germany.
  3. De Paola, Maria & Gioia, Francesca, 2013. "Does Patience Matter for Marriage Stability? Some Evidence from Italy," IZA Discussion Papers 7769, Institute for the Study of Labor (IZA).
  4. Thomas Astebro & Holger Herz & Ramana Nanda & Roberto A. Weber, 2014. "Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 49-70, Summer.

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