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Entrepreneurship: Cause or Consequence of Financial Optimism?

  • Dawson, Christopher

    ()

    (University of Bath)

  • de Meza, David Emmanuel

    ()

    (London School of Economics)

  • Henley, Andrew

    ()

    (Aberystwyth University)

  • Arabsheibani, Reza

    ()

    (Swansea University)

Extant evidence that the self-employed overestimate their returns by more than employees do is consistent with two mutually inclusive possibilities. Self-employment may generate optimism or optimists may be drawn to self-employment. This paper finds that employees who will be self-employed in the future overestimate their short-run financial wellbeing by more than those who never become self-employed. When actually self-employed they are even more optimistic. Employees aspiring to start their own business are also of above average optimism. Cross-sectional findings are therefore an amalgam of psychological disposition and environmental factors, as theory requires if optimism is to be a causal influence on entrepreneurship.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6844.

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Length: 51 pages
Date of creation: Sep 2012
Date of revision:
Publication status: forthcoming in: Journal of Economics and Management Strategy
Handle: RePEc:iza:izadps:dp6844
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  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  2. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  3. Das, J.W.M. & van Soest, A.H.O., 1995. "Expected and realized income changes : Evidence from the Dutch socio-economic panel," Discussion Paper 1995-52, Tilburg University, Center for Economic Research.
  4. Manju Puri & David Robinson, 2005. "Optimism and Economic Choice," NBER Working Papers 11361, National Bureau of Economic Research, Inc.
  5. Gavin Cassar, 2007. "Money, money, money? A longitudinal investigation of entrepreneur career reasons, growth preferences and achieved growth," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 19(1), pages 89-107, January.
  6. Marcel Das & Arthur van Soest, 2000. "Expected Versus Realized Income Expectations: A Test of the Rational Expectations Hypothesis," Econometric Society World Congress 2000 Contributed Papers 1750, Econometric Society.
  7. 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.
  8. 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.
  9. Das, J.W.M. & van Soest, A.H.O., 2000. "Expected Versus Realized Income Changes : A Test of the Rational Expectation Hypothesis," Discussion Paper 2000-105, Tilburg University, Center for Economic Research.
  10. 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.
  11. 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.
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