Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey
AbstractThe influence of risk aversion on the decision to become self-employed is a much discussed topic in the entrepreneurial literature. Conventional wisdom asserts that the role model of an entrepreneur requires to make risky decisions in uncertain environments and hence that more risk-averse individuals are less likely to become an entrepreneur. Empirical tests of this assumption are scarce however, mainly because reliable measures for risk-aversion are not available. We base our analysis on the most recent waves of the German Socio-Economic Panel (SOEP) which allow us to use experimentally-validated measures of risk attitudes. Most importantly and in contrast to previous research, we are able to examine whether the decision of starting a business is influenced by objectively measurable risk attitudes at the time when this decision is made. Our results show that in general individuals with lower risk aversion are more likely to become self-employed. Sensitivity analysis reveals, however, that this is true only for people coming out of regular employment, whereas for individuals coming out of unemployment or inactivity risk attitudes do not seem to play a role in the decision process.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2168.
Length: 23 pages
Date of creation: Jun 2006
Date of revision:
Publication status: published in: Small Business Economics, 2009, 32 (2), 153-167
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Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Other versions of this item:
- Marco Caliendo & Frank Fossen & Alexander Kritikos, 2009. "Risk attitudes of nascent entrepreneurs–new evidence from an experimentally validated survey," Small Business Economics, Springer, vol. 32(2), pages 153-167, February.
- Marco Caliendo & Frank M. Fossen & Alexander S. Kritikos, 2006. "Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey," Discussion Papers of DIW Berlin 600, DIW Berlin, German Institute for Economic Research.
- Caliendo, Marco & Fossen, Frank M. & Kritikos, Alexander S., 2006. "Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally Validated Survey," Discussion Papers 252, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-24 (All new papers)
- NEP-ENT-2006-06-24 (Entrepreneurship)
- NEP-HRM-2006-06-24 (Human Capital & Human Resource Management)
- NEP-UPT-2006-06-24 (Utility Models & Prospect Theory)
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