The Borrower's Curse: Optimism, Finance and Enterpreneurship
This paper argues that most of the facts charaterising small-scale businesses, including high failure rates, reliance on bank credit rather than equity finance, relatively low interest rate margins, and credit rationing, can be explained by a tendancy for those who are excessively optimistic to dominate new entrants. Drawing on findings in psycology, we model entrants as relatively naive optimisers. Banks on the other hand are viewed as well informed and efficient processors of information.
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|Date of creation:||1995|
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