Living Forever: Entrepreneurial Overconfidence at Older Ages
AbstractOverconfidence has been proposed as an explanation for excess market entry by entrepreneurs and low returns in entrepreneurial activities. However, establishing that entrepreneurs are more overconfident than non-entrepreneurs requires the use of representative population samples; in addition, econometric endogeneity issues in survey data must be addressed. To overcome these methodological challenges, we use a measure of overconfidence that employs self-reports of life expectancy. These self-reports are compared to actual life spans in a large sample of the US population. We show that entrepreneurs are indeed more overconfident than non-entrepreneurs. By using fixed-effects panel regression—and thus by exploiting the longitudinal nature of our data—we provide evidence that changes in entrepreneurial status are not associated with changes in subjective life expectancy. These two findings in combination offer evidence that overconfident individuals self- select into entrepreneurship.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam in its series ERIM Report Series Research in Management with number ERS-2013-012-STR.
Date of creation: 23 Jul 2013
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entrepreneurship; life expectancy; overconfidence; selection; self-employment;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
This paper has been announced in the following NEP Reports:
- NEP-AGE-2014-01-17 (Economics of Ageing)
- NEP-ALL-2014-01-17 (All new papers)
- NEP-ENT-2014-01-17 (Entrepreneurship)
- NEP-HEA-2014-01-17 (Health Economics)
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