Entry into Entrepreneurship: Risk Loving, Optimism or Overweighting of Small Probabilities?

32 Pages Posted: 12 Nov 2009 Last revised: 3 Mar 2013

See all articles by Thomas B. Astebro

Thomas B. Astebro

HEC Paris - Economics and Decision Sciences

José Mata

Nova School of Business and Economics

Luís Santos-Pinto

University of Lausanne

Date Written: September 2, 2010

Abstract

In a controlled laboratory experiment we use one sample of students and one of mature individuals participating in an executive education entrepreneurship seminar to examine how positive skew influences risky choices. Both groups are found to respond positively to skew. We estimate decision models to explore three explanations for the preference for skew: risk-loving (convex utility), optimism (concave probability weighting), and likelihood insensitivity (inverse s-shape probability weighting). Somewhat surprisingly, decision making by students and executives is not much different. Both students and executives have concave utility, are optimists, and display likelihood insensitivity. Executives have more concave utility and are more optimistic, but this is found to be largely due to them being older. This change in behavior with age may be part of the explanation why older people are more likely to enter into entrepreneurship.

Keywords: Entrepreneurship, Decision Making under Risk, Skew

JEL Classification: M13, D81, C91

Suggested Citation

Astebro, Thomas B. and Mata, José and Santos-Pinto, Luis P., Entry into Entrepreneurship: Risk Loving, Optimism or Overweighting of Small Probabilities? (September 2, 2010). Available at SSRN: https://ssrn.com/abstract=1503912 or http://dx.doi.org/10.2139/ssrn.1503912

Thomas B. Astebro (Contact Author)

HEC Paris - Economics and Decision Sciences ( email )

Jouy-en-Josas Cedex, 78351
France

HOME PAGE: http://www.hec.edu/Faculty-Research/Faculty-Directory/ASTEBRO-Thomas

José Mata

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

Luis P. Santos-Pinto

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

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