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Risk, Uncertainty and Entrepreneurship: Evidence from a Lab-in-the-Field Experiment

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  • Koudstaal, Martin

    () (University of Amsterdam)

  • Sloof, Randolph

    () (University of Amsterdam)

  • van Praag, Mirjam C.

    () (Copenhagen Business School)

Abstract

Theory predicts that entrepreneurs have distinct attitudes towards risk and uncertainty, but empirical evidence is mixed. To better understand the unique behavioral characteristics of entrepreneurs and the causes of these mixed results, we perform a large 'lab-in-the-field' experiment comparing entrepreneurs to managers – a suitable comparison group – and employees (n = 2288). The results indicate that entrepreneurs perceive themselves as less risk averse than managers and employees, in line with common wisdom. However, when using experimental incentivized measures, the differences are subtler. Entrepreneurs are only found to be unique in their lower degree of loss aversion, and not in their risk or ambiguity aversion. This combination of results might be explained by our finding that perceived risk attitude is not only correlated to risk aversion but also to loss aversion. Overall, we therefore suggest using a broader definition of risk that captures this unique feature of entrepreneurs; their willingness to risk losses.

Suggested Citation

  • Koudstaal, Martin & Sloof, Randolph & van Praag, Mirjam C., 2014. "Risk, Uncertainty and Entrepreneurship: Evidence from a Lab-in-the-Field Experiment," IZA Discussion Papers 8577, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp8577
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    Cited by:

    1. Martin Koudstaal & Randolph (R.) Sloof & Mirjam (C.M.) van Praag, 2017. "Intuitive versus Contemplative: Do Entrepreneurs differ in their Decision-Making Style from Managers and Employees?," Tinbergen Institute Discussion Papers 17-100/VII, Tinbergen Institute.
    2. repec:kap:sbusec:v:49:y:2017:i:2:d:10.1007_s11187-017-9847-9 is not listed on IDEAS
    3. Hermann, Daniel & Mußhoff, Oliver & Rau, Holger A., 2017. "The disposition effect when deciding on behalf of others," Center for European, Governance and Economic Development Research Discussion Papers 332, University of Goettingen, Department of Economics.
    4. Arvid Raknerud & Mirjam van Praag, 2014. "The entrepreneurial earnings puzzle. Evidence from matched person-firm data," Discussion Papers 789, Statistics Norway, Research Department.
    5. Tran, Hien Thu & Carbonara, Emanuela & Santarelli, Enrico, 2017. "Determinants of Novice, Portfolio and Serial Entrepreneurship: An Occupational Choice Approach," GLO Discussion Paper Series 74, Global Labor Organization (GLO).

    More about this item

    Keywords

    entrepreneurs; managers; risk aversion; loss aversion; ambiguity aversion; lab-in-the-field experiment;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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