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Risk Attitudes and Private Business Equity

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  • Frank M. Fossen

Abstract

Why do people engage in entrepreneurship and commit large parts of their personal wealth to their business, despite comparably low returns and high risk? This paper connects several streams of literature to shed some light on this puzzle and suggests possible future research avenues. Key insights from the literature are that entrepreneurs may operate in imperfect financial markets and that entrepreneurs are less risk-averse than the rest of the population. A focus of this paper is, therefore, on the role of heterogeneous risk attitudes in entrepreneurial decisions, specifically portfolio choice and the entry and exit decisions. Nonpecuniary benefits of entrepreneurship, such as being independent in the workplace, also contribute to an explanation of entrepreneurial behavior.

Suggested Citation

  • Frank M. Fossen, 2012. "Risk Attitudes and Private Business Equity," Discussion Papers of DIW Berlin 1209, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1209
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    References listed on IDEAS

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    Cited by:

    1. Joanna Tyrowicz & Magdalena Smyk & Barbara Liberda, 2017. "Talent workers as entrepreneurs: a new approach to aspirational self-employment," Bank i Kredyt, Narodowy Bank Polski, vol. 48(6), pages 571-592.
    2. Fossen, Frank M. & Glocker, Daniela, 2017. "Stated and revealed heterogeneous risk preferences in educational choice," European Economic Review, Elsevier, vol. 97(C), pages 1-25.

    More about this item

    Keywords

    Entrepreneurship; risk aversion; portfolio choice;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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