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Do individuals’ risk and time preferences predict entrepreneurial choice?

Author

Listed:
  • Cook, William
  • Whittle, Richard
Abstract
This study seeks to estimate whether individuals’ risk and time preferences are predictive of self employment status and entry. Prior Work: The low risk aversion of those who are self employed is well established in theory and empirical evidence, there is less evidence however on whether risk seeking in existing employees predicts future self employment entry and virtually no empirical research on the links between time preference and self employment. Approach: This study uses a quantitative approach by estimating a series of statistical models that estimate the relationship between an individuals’ risk and time preferences and whether they are (or subsequently become) self employed using a national longitudinal dataset. Results: We find that the self employed are more likely to have low risk aversion. When restricting our analysis to those who are initially employees we find that , low risk aversion combined with a preference for short term gains are most predictive of a transition into self employment. Implications and Value: This study informs the general question as to whether entrepreneurship is linked to personality traits with new evidence on the link between risk and time preference and self employment entry, in doing so it points towards attitudes toward risk and time preference that need to be encouraged if entrepreneurship is to be developed within countries and firms.

Suggested Citation

  • Cook, William & Whittle, Richard, 2015. "Do individuals’ risk and time preferences predict entrepreneurial choice?," MPRA Paper 66674, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:66674
    as

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    File URL: https://mpra.ub.uni-muenchen.de/66674/1/MPRA_paper_66674.pdf
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    References listed on IDEAS

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    11. Chie Hanaoka & Hitoshi Shigeoka & Yasutora Watanabe, 2015. "Do Risk Preferences Change? Evidence from Panel Data before and after the Great East Japan Earthquake," NBER Working Papers 21400, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Wright, Joshua, 2017. "To what extent does income predict an individual’s risk profile in the UK (2012- 2014)," MPRA Paper 80757, University Library of Munich, Germany.

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    More about this item

    Keywords

    Risk Preference; Time Preference; Decision Making; Economics; Entrepreneurship;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • J0 - Labor and Demographic Economics - - General
    • M0 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General

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