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

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  • Caliendo, Marco
  • Fossen, Frank M.
  • Kritikos, Alexander S.

Abstract

The in°uence of risk aversion on the decision to become self-employed is a much discussed topic in the entrepreneurial literature. Conventional wisdom asserts that being an entrepreneur means making risky decisions in uncertain environments; hence more risk-averse individuals are less likely to become entrepreneurs. Empirical tests of this assumption are scarce, however, mainly because reliable measures of 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 in°uenced 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 Info

Paper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 252.

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Date of creation: 2006
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Handle: RePEc:zbw:euvwdp:252

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Keywords: Risk Attitudes; Entrepreneurship; Self-Employment;

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References

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  1. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  2. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jurgen Schupp & Gert Wagner, 2005. "Individual risk attitudes: New evidence from a large, representative, experimentally-validated survey," Framed Field Experiments 00140, The Field Experiments Website.
  4. 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, University of Chicago Press, vol. 18(2), pages 282-305, April.
  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.
  6. Joachim Wagner, 2003. "The Impact of Personal Characteristics and the Regional Milieu on the Transition from Unemployment to Self-employment: Empirical Evidence for Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 223(2), pages 204-222, March.
  7. 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, MIT Press, vol. 112(2), pages 537-79, May.
  8. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-74, June.
  9. Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January.
  10. Schiller, Bradley R & Crewson, Philip E, 1997. "Entrepreneurial Origins: A Longitudinal Inquiry," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 35(3), pages 523-31, July.
  11. 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.
  12. Pia Arenius & Maria Minniti, 2005. "Perceptual Variables and Nascent Entrepreneurship," Small Business Economics, Springer, vol. 24(3), pages 233-247, 02.
  13. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  14. 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.
  15. 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, London School of Economics and Political Science, vol. 68(269), pages 45-62, February.
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