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The Power of (Non) Positive Thinking: Self-Employed Pessimists Earn More than Optimists

Author

Listed:
  • Dawson, Christopher

    () (University of Bath)

  • de Meza, David Emmanuel

    () (London School of Economics)

  • Henley, Andrew

    () (Cardiff University)

  • Arabsheibani, Reza

    () (London School of Economics)

Abstract

Developing further the accumulating evidence that self-employment attracts optimists, this paper investigates the relationship between earnings and prior optimism. It finds that self-employed optimists earn less than self-employed realists. Amongst employees, optimists earn more. These results are consistent with biased expectations leading to entry errors. As a test of validity, we find that amongst the married, future divorcees have higher financial expectations but their realisations are no worse, suggesting our optimism measure captures an intrinsic psychological trait associated with rash decisions.

Suggested Citation

  • Dawson, Christopher & de Meza, David Emmanuel & Henley, Andrew & Arabsheibani, Reza, 2015. "The Power of (Non) Positive Thinking: Self-Employed Pessimists Earn More than Optimists," IZA Discussion Papers 9242, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9242
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    References listed on IDEAS

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    Cited by:

    1. Ferrando-Latorre, Sandra & Velilla, Jorge, 2018. "La transmisión intergeneracional de la actividad emprendedora en las familias españolas
      [Intergeneration transmissions of the entrepreneurial activity in Spanish households]
      ," MPRA Paper 83573, University Library of Munich, Germany.
    2. Molina, Jose Alberto & Velilla, Jorge & Ortega, Raquel, 2015. "The decision to become an entrepreneur in Spain: The role of the household financial situation," MPRA Paper 68101, University Library of Munich, Germany.
    3. Jorge, Velilla, 2017. "Feminization of entrepreneurship in developing countries? Evidence from GEM data," MPRA Paper 79997, University Library of Munich, Germany.
    4. Molina, Jose Alberto & Ortega, Raquel & Velilla, Jorge, 2017. "Older entrepreneurs-by-necessity using fuzzy set methods: differences between developed and developing countries," MPRA Paper 76982, University Library of Munich, Germany.
    5. Molina, Jose Alberto & Velilla, Jorge & Ortega, Raquel, 2016. "Entrepreneurial activity in the OECD: Pooled and cross-country evidence," MPRA Paper 71592, University Library of Munich, Germany.
    6. Gimenez-Nadal, J. Ignacio & Molina, José Alberto & Velilla, Jorge, 2016. "A Wage-Efficiency Spatial Model for US Self-Employed Workers," IZA Discussion Papers 9634, Institute for the Study of Labor (IZA).
    7. Peter Schwardmann & Joël van der Weele, 2016. "Deception and Self-Deception," Tinbergen Institute Discussion Papers 16-012/I, Tinbergen Institute.
    8. Velilla, Jorge, 2018. "The entrepreneurial activity using GEM data: evidence for Spain (national and regional) and for Europe," MPRA Paper 85568, University Library of Munich, Germany.
    9. Molina, Jose Alberto & Velilla, Jorge, 2016. "La innovación como determinante pare el emprendimiento
      [Innovation as determinant of entrepreneurship]
      ," MPRA Paper 71471, University Library of Munich, Germany.
    10. J. Ignacio, Giménez-Nadal & Jose Alberto, Molina & Jorge, Velilla, 2017. "Leisure and effort at work: incorporating self-employment into urban markets," MPRA Paper 77972, University Library of Munich, Germany.
    11. Martin Koudstaal & Randolph Sloof & Mirjam van Praag, 2015. "Are Entrepreneurs more Optimistic and Overconfident than Managers and Employees?," Tinbergen Institute Discussion Papers 15-124/VII, Tinbergen Institute.

    More about this item

    Keywords

    financial optimism; expectations; self-employment;

    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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