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

Listed author(s):
  • Dawson, Christopher

    ()

    (University of Bath)

  • de Meza, David Emmanuel

    ()

    (London School of Economics)

  • Henley, Andrew

    ()

    (Cardiff University)

  • Arabsheibani, Reza

    ()

    (Swansea University)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 9242.

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Length: 49 pages
Date of creation: Jul 2015
Handle: RePEc:iza:izadps:dp9242
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  5. Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.
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  12. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
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  21. Dawson, Christopher & de Meza, David Emmanuel & Henley, Andrew & Arabsheibani, Reza, 2012. "Entrepreneurship: Cause or Consequence of Financial Optimism?," IZA Discussion Papers 6844, Institute for the Study of Labor (IZA).
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