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Curb your enthusiasm: optimistic entrepreneurs earn less

Author

Listed:
  • Dawson, Christopher
  • de Meza, David
  • Henley, Andrew
  • Arabsheibani, G. Reza

Abstract

This paper concerns the implications of biased beliefs on entrepreneurial earnings. Amongst self-employed business owners, income is decreasing in optimism measured whilst still an employee. Controlling for earnings in paid employment, self-employment earnings of those with optimism above the mean are some 30% less than those with optimism below the mean. For employees, it is optimists that have higher earnings. These and associated results suggest that mistaken expectations lead to entry errors. As a test of external validity, future divorcees turn out to be financial optimists, indicating our measure captures an intrinsic psychological trait associated with rash decisions.

Suggested Citation

  • Dawson, Christopher & de Meza, David & Henley, Andrew & Arabsheibani, G. Reza, 2019. "Curb your enthusiasm: optimistic entrepreneurs earn less," LSE Research Online Documents on Economics 90264, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:90264
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    File URL: https://researchonline.lse.ac.uk/id/eprint/90264/
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    Cited by:

    1. Michele Dell'Era & Luca David Opromolla & Luís Santos‐Pinto, 2023. "Can optimism solve the entrepreneurial earnings puzzle?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(1), pages 139-169, January.
    2. Marco Caliendo & Alexander S. Kritikos & Daniel Rodríguez & Claudia Stier, 2023. "Self-efficacy and entrepreneurial performance of start-ups," Small Business Economics, Springer, vol. 61(3), pages 1027-1051, October.
    3. Heny Hendrayati & Frederic Marimon & Wu-Yuin Hwang & Tia Yuliawati & Perengki Susanto & Rahmiati Rahmiati, 2025. "Customer relationship management and value creation as key mediators of female-owned MSMEs’ market performance," Journal of Innovation and Entrepreneurship, Springer, vol. 14(1), pages 1-25, December.
    4. Sergio A. Contreras, 2019. "Self-Employment in Times of Crisis: The Case of the Spanish Financial Crisis," Economies, MDPI, vol. 7(3), pages 1-14, August.
    5. Guo, Shiqi & An, Jiafu, 2022. "Does terrorism make people pessimistic? Evidence from a natural experiment," Journal of Development Economics, Elsevier, vol. 155(C).
    6. Kritikos, Alexander, 2022. "Personality and Entrepreneurship," GLO Discussion Paper Series 1137, Global Labor Organization (GLO).
    7. Aymeric Bellon & J. Anthony Cookson & Erik P. Gilje & Rawley Z. Heimer, 2020. "Personal Wealth and Self-Employment," NBER Working Papers 27452, National Bureau of Economic Research, Inc.
    8. Min, Jungwon, 2024. "Near-lies in the era of advanced technology: Anticipation and uncertainty," Technology in Society, Elsevier, vol. 79(C).
    9. Melanie Koch & Lukas Menkhoff, 2025. "The non-linear impact of risk tolerance on entrepreneurial profit and business survival," Small Business Economics, Springer, vol. 64(4), pages 1643-1670, April.
    10. Byun, Sang-Eun & Han, Siyuan & Kim, Hyejeong & Centrallo, Carol, 2020. "US small retail businesses’ perception of competition: Looking through a lens of fear, confidence, or cooperation," Journal of Retailing and Consumer Services, Elsevier, vol. 52(C).
    11. Thomas Astebro & Frank Fossen & Cédric Gutierrez, 2024. "Entrepreneurs: Clueless, Biased, Poor Heuristics, or Bayesian Machines?," Working Papers hal-04759301, HAL.
    12. Marco Caliendo & Frank M Fossen & Alexander S Kritikos, 2022. "Personality characteristics and the decision to hire [Do the unemployed become successful entrepreneurs?]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(3), pages 736-761.

    More about this item

    Keywords

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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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