IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/22109.html

Heterogeneous Risk Preferences, Entrepreneurship, and Wealth

Author

Listed:
  • Hochmuth, Brigitte
  • Merz, Monika
  • Prettenthaler, Fabian

Abstract

This paper studies how individual risk attitudes shape occupational choice and wealth accumulation. Using self-reported individual risk preferences from the German Socio-Economic Panel (GSOEP), we estimate that a one-unit increase in risk aversion lowers the probability of a worker transitioning to self-employment by 17 percent. We develop a life-cycle model of occupational choice with Epstein-Zin preferences and heterogeneous risk attitudes to examine how risk aversion interacts with entrepreneurial ability and wealth in determining entry into self-employment, the survival probability upon entry, and its aggregate implications. Counterfactual simulations show that increasing business risk reduces entry and shifts the pool of entrepreneurs toward less risk-averse individuals. In contrast, Germany’s “1-Euro GmbH†reform of 2008 weakened the role of risk aversion for entry, drawing more risk-averse individuals into entrepreneurship with little change in their ability composition.

Suggested Citation

  • Hochmuth, Brigitte & Merz, Monika & Prettenthaler, Fabian, 2026. "Heterogeneous Risk Preferences, Entrepreneurship, and Wealth," CEPR Discussion Papers 22109, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:22109
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP22109
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:22109. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.