Risk Attitudes of Nascent Entrepreneurs

Abstract

The influence of risk aversion on the decision to become self-employed is a much discussed topic in the entrepreneurial literature. Conventional wisdom asserts that being an entrepreneur means making risky decisions; hence more risk-averse individuals are less likely to become entrepreneurs. In contrast to previous research, we are able to examine empirically whether the decision of starting a business is influenced by objectively measurable risk attitudes at the time when this decision is made. Our results show that in general, individuals with lower risk aversion are more likely to become self-employed. Sensitivity analysis reveals, however, that this is true only for people coming out of regular employment, whereas for individuals coming out of unemployment or inactivity, risk attitudes do not seem to play a role in the Recision process.