The Bright but Right View? A New Type of Evidence on Entrepreneurial Optimism
Existing empirical evidence suggests that entrepreneurs are optimists, a finding researchers often interpret as evidence of a behavioral bias in entrepreneurial decision-making. We revisit this claim by analyzing an unusually large survey dataset (180,814 responses) that allows us to create a good measure of entrepreneurial optimism. Our measure is based on the individual’s beliefs about nationwide economic conditions, unlike measures that prevail in the literature of an individual’s beliefs about her personal future economic conditions. Beliefs about nationwide economic conditions form a good measure of optimism because they are completely uncorrelated with the individual’s own life or work situation (which is not optimism) and therefore do not respond to an individual’s objective situation, which may affect beliefs about her personal future economic conditions. Our data highlight the importance of measuring optimism correctly. About half of the survey respondents differ in their beliefs about nationwide and own conditions. In addition, our measure of optimism makes it possible to relate an individual’s beliefs to actual outcomes. We can thereby test, in a novel way, whether entrepreneurial optimism is a behavioral bias or not. We show that entrepreneurs have more favorable beliefs about nationwide conditions and then that these entrepreneurs’ beliefs are relatively good predictors of the future. We conclude from these two findings that entrepreneurs are less biased towards optimism than non-entrepreneurs are biased towards pessimism. Additional evidence pertaining to education, which arguably correlates positively with rational decision-making, supports this conclusion. We show that entrepreneurs are more educated and their beliefs about the future are more similar to educated peoples’ beliefs. In summary, our paper documents that entrepreneurial optimism is an important real-world phenomenon, yet, it may not be a behavioral bias that gives rise to irrational decision-making.
|Date of creation:||19 Feb 2014|
|Contact details of provider:|| Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden|
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mathew L. A. Hayward & Dean A. Shepherd & Dale Griffin, 2006. "A Hubris Theory of Entrepreneurship," Management Science, INFORMS, vol. 52(2), pages 160-172, February.
- Mike Wright & Paul Westhead & Deniz Ucbasaran, 2007. "Internationalization of Small and Medium-sized Enterprises (SMEs) and International Entrepreneurship: A Critique and Policy Implications," Regional Studies, Taylor & Francis Journals, vol. 41(7), pages 1013-1030.
- de Meza, David & Southey, Clive, 1996.
"The Borrower's Curse: Optimism, Finance and Entrepreneurship,"
Royal Economic Society, vol. 106(435), pages 375-386, March.
- De Meza, D. & Southey, C., 1995. "The Borrower's Curse: Optimism, Finance and Enterpreneurship," Discussion Papers 9502, Exeter University, Department of Economics.
- Philipp Koellinger, 2008. "Why are some entrepreneurs more innovative than others?," Small Business Economics, Springer, vol. 31(1), pages 21-37, June.
- Koellinger, Ph.D., 2007. "Why Are Some Entrepreneurs More Innovative Than Others?," ERIM Report Series Research in Management ERS-2007-024-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Cooper, Arnold C. & Woo, Carolyn Y. & Dunkelberg, William C., 1988. "Entrepreneurs' perceived chances for success," Journal of Business Venturing, Elsevier, vol. 3(2), pages 97-108.
- Marco Caliendo & Frank Fossen & Alexander Kritikos, 2009. "Risk attitudes of nascent entrepreneurs–new evidence from an experimentally validated survey," Small Business Economics, Springer, vol. 32(2), pages 153-167, February.
- Caliendo, Marco & Fossen, Frank M. & Kritikos, Alexander S., 2006. "Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally Validated Survey," Discussion Papers 252, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
- Caliendo, Marco & Fossen, Frank M. & Kritikos, Alexander S., 2006. "Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey," IZA Discussion Papers 2168, Institute for the Study of Labor (IZA).
- Marco Caliendo & Frank M. Fossen & Alexander S. Kritikos, 2006. "Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey," Discussion Papers of DIW Berlin 600, DIW Berlin, German Institute for Economic Research.
- Mueller, Stephen L. & Thomas, Anisya S., 2001. "Culture and entrepreneurial potential: A nine country study of locus of control and innovativeness," Journal of Business Venturing, Elsevier, vol. 16(1), pages 51-75, January.
- Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 29-36, May.
- Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September.
- Augustin Landier & David Thesmar, 2009. "Financial Contracting with Optimistic Entrepreneurs," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 117-150, January.
- Augustin Landier & David Thesmar, 2009. "Financial Contracting with Optimistic Entrepreneurs," Post-Print hal-00461106, HAL.
- Stuart Fraser & Francis J. Greene, 2006. "The Effects of Experience on Entrepreneurial Optimism and Uncertainty," Economica, London School of Economics and Political Science, vol. 73(290), pages 169-192, 05.
- Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc.
- Ucbasaran, Deniz & Westhead, Paul & Wright, Mike & Flores, Manuel, 2010. "The nature of entrepreneurial experience, business failure and comparative optimism," Journal of Business Venturing, Elsevier, vol. 25(6), pages 541-555, November.
- Busenitz, Lowell W. & Barney, Jay B., 1997. "Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making," Journal of Business Venturing, Elsevier, vol. 12(1), pages 9-30, January.
- StewartJr., Wayne H. & Watson, Warren E. & Carland, Joann C. & Carland, James W., 1999. "A proclivity for entrepreneurship: A comparison of entrepreneurs, small business owners, and corporate managers," Journal of Business Venturing, Elsevier, vol. 14(2), pages 189-214, March.
- Ola Bengtsson & Dan Bernhardt, 2014. "Lawyers In Venture Capital Contracting: Theory And Evidence," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1080-1102, 07.
- Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January.
- Sternberg, Robert J., 2004. "Successful intelligence as a basis for entrepreneurship," Journal of Business Venturing, Elsevier, vol. 19(2), pages 189-201, March.
- Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
- Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
- van Praag, C M & Cramer, J S, 2001. "The Roots of Entrepreneurship and Labour Demand: Individual Ability and Low Risk Aversion," Economica, London School of Economics and Political Science, vol. 68(269), pages 45-62, February. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:hhs:iuiwop:1008. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisabeth Gustafsson)
If references are entirely missing, you can add them using this form.