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Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics

Author

Listed:
  • Thomas Astebro
  • Holger Herz
  • Ramana Nanda
  • Roberto A. Weber

Abstract

There is a growing body of evidence that many entrepreneurs seem to enter and persist in entrepreneurship despite earning low risk-adjusted returns. This has lead to attempts to provide explanations—using both standard economic theory and behavioral economics—for why certain individuals may be attracted to such an apparently unprofitable activity. Drawing on research in behavioral economics, in the sections that follow, we review three sets of possible interpretations for understanding the empirical facts related to the entry into, and persistence in, entrepreneurship. Differences in risk aversion provide a plausible and intuitive interpretation of entrepreneurial activity. In addition, a growing literature has begun to highlight the potential importance of overconfidence in driving entrepreneurial outcomes. Such a mechanism may appear at face value to work like a lower level of risk aversion, but there are clear conceptual differences—in particular, overconfidence likely arises from behavioral biases and misperceptions of probability distributions. Finally, nonpecuniary taste-based factors may be important in motivating both the decisions to enter into and to persist in entrepreneurship.

Suggested Citation

  • Thomas Astebro & Holger Herz & Ramana Nanda & Roberto A. Weber, 2014. "Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 49-70, Summer.
  • Handle: RePEc:aea:jecper:v:28:y:2014:i:3:p:49-70
    Note: DOI: 10.1257/jep.28.3.49
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    References listed on IDEAS

    as
    1. Hvide, Hans K. & Panos, Georgios A., 2014. "Risk tolerance and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 111(1), pages 200-223.
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    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. “Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics,” T. Astebro, H. Herz, R. Nanda & R. Weber (2014)
      by afinetheorem in A Fine Theorem on 2014-08-23 02:37:36

    Citations

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    Cited by:

    1. Dell’Era, Michele & Opromolla, Luca David & Santos-Pinto,, 2018. "A General Equilibrium Theory of Occupational Choice under Optimistic Beliefs about Entrepreneurial Ability," CEPR Discussion Papers 13225, C.E.P.R. Discussion Papers.
    2. Kornai, János, 2015. "Milyen is hát a tőke a 21. században?. Megjegyzések Piketty könyvéhez
      [So what is capital in the 21st century?. Notes on Piketty s book]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 909-942.
    3. Javier Mejia, 2018. "Social Networks and Entrepreneurship. Evidence from a Historical Episode of Industrialization," Working Papers 20180020, New York University Abu Dhabi, Department of Social Science, revised Sep 2018.
    4. repec:kap:sbusec:v:49:y:2017:i:4:d:10.1007_s11187-017-9853-y is not listed on IDEAS
    5. Sari Pekkala Kerr & William R. Kerr & Ramana Nanda, 2015. "House Money and Entrepreneurship," Harvard Business School Working Papers 15-069, Harvard Business School.
    6. Zoltan Acs & Thomas Åstebro & David Audretsch & David T. Robinson, 2016. "Public policy to promote entrepreneurship: a call to arms," Small Business Economics, Springer, vol. 47(1), pages 35-51, June.
    7. Martijn Adriaan Boermans & Daan Willebrands, 2017. "Entrepreneurship, risk perception and firm performance," International Journal of Entrepreneurship and Small Business, Inderscience Enterprises Ltd, vol. 31(4), pages 557-569.
    8. Matthew Roskruge & Jacques Poot & Laura King, 2016. "Social capital, entrepreneurship and living standards: differences between migrants and the native born," Chapters,in: Handbook of Social Capital and Regional Development, chapter 9, pages 221-254 Edward Elgar Publishing.
    9. repec:eee:eecrev:v:111:y:2019:i:c:p:53-69 is not listed on IDEAS
    10. Victor Aguirregabiria & Jihye Jeon, 2018. "Firms' Beliefs and Learning: Models, Identification, and Empirical Evidence," Working Papers tecipa-620, University of Toronto, Department of Economics.
    11. Royal, Andrew & Tasoff, Joshua, 2017. "When higher productivity hurts: The interaction between overconfidence and capital," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 67(C), pages 131-142.
    12. repec:kap:jbuset:v:156:y:2019:i:2:d:10.1007_s10551-017-3560-0 is not listed on IDEAS
    13. Valerie Revest & Alessandro Sapio, 2016. "The creation function of a junior listing venue: An empirical test on the Alternative Investment Market," LEM Papers Series 2016/32, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    14. Sari Pekkala Kerr & William R. Kerr & Tina Xu, 2017. "Personality Traits of Entrepreneurs: A Review of Recent Literature," NBER Working Papers 24097, National Bureau of Economic Research, Inc.
    15. Vera Rocha & Mirjam van Praag & Anabela Carneiro, 2015. "Deviating from the benchmarks: Human capital inputs and the survival of new startups," CEF.UP Working Papers 1502, Universidade do Porto, Faculdade de Economia do Porto.
    16. Holm, Håkan J. & Nee, Victor & Opper, Sonja, 2016. "Strategic Decisions: Behavioral Differences Between CEOs and Others," Working Papers 2016:35, Lund University, Department of Economics.
    17. Chang, Simon & Zhang, Xiaobo, 2015. "Mating competition and entrepreneurship," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 292-309.
    18. Thomas Åstebro, 2017. "The private financial gains to entrepreneurship: Is it a good use of public money to encourage individuals to become entrepreneurs?," Small Business Economics, Springer, vol. 48(2), pages 323-329, February.
    19. repec:eee:enepol:v:126:y:2019:i:c:p:88-98 is not listed on IDEAS
    20. Hyytinen, Ari & Pajarinen, Mika & Rouvinen, Petri, 2015. "Does innovativeness reduce startup survival rates?," Journal of Business Venturing, Elsevier, vol. 30(4), pages 564-581.
    21. Kevin J. Boudreau, 2018. "Amateurs Crowds & Professional Entrepreneurs as Platform Complementors," NBER Working Papers 24512, National Bureau of Economic Research, Inc.
    22. Miglo, Anton, 2018. "Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur," MPRA Paper 89015, University Library of Munich, Germany.
    23. Hanspal, Tobin, 2016. "The effect of personal financing disruptions on entrepreneurship," SAFE Working Paper Series 161, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    24. repec:eee:joepsy:v:67:y:2018:i:c:p:177-190 is not listed on IDEAS

    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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