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Risk aversion, downside risk aversion, and the transition to entrepreneurship

Author

Listed:
  • Claudio A. Bonilla

    (University of Chile)

  • Marcos Vergara

    (Universidad del Desarrollo)

Abstract

In this paper, we discuss the transition from secure employment to risky self-employment (entrepreneurship) caused by a small increase in wealth. Building on the apportioning risk literature, we prove that the transition from secure employment to risky entrepreneurship is based on a measure of the difference between the strength of downside risk aversion and the strength of risk aversion. This result highlights the idea that using the behavioral approach of risky lotteries to study entrepreneurship can produce different results from the traditional economic theory of entrepreneurship, which can have policy implications that must be considered with caution.

Suggested Citation

  • Claudio A. Bonilla & Marcos Vergara, 2021. "Risk aversion, downside risk aversion, and the transition to entrepreneurship," Theory and Decision, Springer, vol. 91(1), pages 123-133, July.
    • Handle: RePEc:kap:theord:v:91:y:2021:i:1:d:10.1007_s11238-020-09786-w
    DOI: 10.1007/s11238-020-09786-w
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    References listed on IDEAS

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    Cited by:

    1. Wong, Kit Pong, 2023. "Risk aversion and entrepreneurship under uncertainty: Further results," Economics Letters, Elsevier, vol. 230(C).
    2. Bonilla, Claudio A. & Fica, Diego, 2022. "Loss aversion and risky entrepreneurship," Finance Research Letters, Elsevier, vol. 48(C).
    3. Claudio A. Bonilla & Marcos Vergara & Richard Watt, 2022. "Changes in risk and entrepreneurship," Risk Management, Palgrave Macmillan, vol. 24(4), pages 367-385, December.

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