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Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey

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Author Info
Marco Caliendo () (DIW Berlin, IAB Nuremberg and IZA Bonn)
Frank M. Fossen () (DIW Berlin)
Alexander S. Kritikos () (European University Viadrina, Frankfurt (Oder), GfA and IAB Nuremberg)

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Abstract

The 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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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2168.

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Length: 23 pages
Date of creation: Jun 2006
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Handle: RePEc:iza:izadps:dp2168

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Related research
Keywords: risk attitudes; entrepreneurship; self-employment;

Other versions of this item:

Find related papers by JEL classification:
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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Bernard F. Lentz & David N. Laband, 1990. "Entrepreneurial Success and Occupational Inheritance among Proprietors," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 563-79, August. [Downloadable!] (restricted)
  3. Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January. [Downloadable!] (restricted)
  4. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
  5. Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 29-36, May. [Downloadable!] (restricted)
  6. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April. [Downloadable!] (restricted)
  7. Schiller, Bradley R & Crewson, Philip E, 1997. "Entrepreneurial Origins: A Longitudinal Inquiry," Economic Inquiry, Oxford University Press, vol. 35(3), pages 523-31, July.
  8. Pia Arenius & Maria Minniti, 2005. "Perceptual Variables and Nascent Entrepreneurship," Small Business Economics, Springer, vol. 24(3), pages 233-247, 02. [Downloadable!] (restricted)
  9. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
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  10. van Praag, C M & Cramer, J S, 2001. "The Roots of Entrepreneurship and Labour Demand: Individual Ability and Low Risk Aversion," Economica, London School of Economics and Political Science, vol. 68(269), pages 45-62, February. [Downloadable!] (restricted)
  11. StewartJr., Wayne H. & Watson, Warren E. & Carland, Joann C. & Carland, James W., 1999. "A proclivity for entrepreneurship: A comparison of entrepreneurs, small business owners, and corporate managers," Journal of Business Venturing, Elsevier, vol. 14(2), pages 189-214, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Caliendo & Frank Fossen & Alexander S. Kritikos, 2008. "The Impact of Risk Attitudes on Entrepreneurial Survival," Working Papers 012, Hanseatic University, Germany, Department of Economics. [Downloadable!]
    Other versions:
  2. Mariko Klasing, 2008. "Culturally Risk Averse? – A Model of Economic Growth with Endogenous Culture," University of St. Gallen Department of Economics working paper series 2008 2008-23, Department of Economics, University of St. Gallen. [Downloadable!]
  3. Marco Caliendo & Alexander S. Kritikos & Frank Wießner, 2006. "Existenzgründungsförderung in Deutschland: Zwischenergebnisse aus der Hartz-Evaluation," Working Papers 0006, Gesellschaft für Arbeitsmarktaktivierung (GfA). [Downloadable!]
  4. Frank M. Fossen, 2007. "Risky Earnings, Taxation and Entrepreneurial Choice: A Microeconometric Model for Germany," SOEPpapers 29, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
    Other versions:
  5. Daniela Glocker & Viktor Steiner, 2007. "Self-Employment - a Way to End Unemployment?: Empirical Evidence from German Pseudo-Panel Data," Discussion Papers of DIW Berlin 661, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  6. Marco Caliendo & Alexander S. Kritikos, 2007. "Is Entrepreneurial Success Predictable? An Ex-Ante Analysis of the Character-Based Approach," IZA Discussion Papers 2687, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Verena Mertins, 2008. "Die Empfänger von Innovationsförderung: Ergebnisse einer Unternehmensbefragung in Niedersachsen," Departmental Discussion Papers 134, University of Goettingen, Department of Economics, revised 05 Feb 2008. [Downloadable!]
  8. Block, Joern & Sandner, Philipp & Spiegel, Frank, 2009. "Do risk attitudes differ within the group of entrepreneurs?," MPRA Paper 17587, University Library of Munich, Germany. [Downloadable!]
  9. Marco Caliendo & Alexander S. Kritikos, 2008. "Start-Ups by the Unemployed: Characteristics, Survival and Direct Employment Effects," Working Papers 008, Hanseatic University, Germany, Department of Economics. [Downloadable!]
    Other versions:
  10. Niels Bosma & R. Sternberg & Zoltan Acs, 2008. "The Entrepreneurial Advantage of World Cities," Scales Research Reports H200810, EIM Business and Policy Research. [Downloadable!]
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