Curb your enthusiasm: optimistic entrepreneurs earn less

Publication type

Journal Article

Authors

Publication date

September 26, 2018

Summary:

This paper concerns the implications of biased beliefs on entrepreneurial earnings. Amongst self-employed business owners, income is decreasing in optimism measured whilst still an employee. Controlling for earnings in paid employment, self-employment earnings of those with optimism above the mean are some 30% less than those with optimism below the mean. For employees, it is optimists that have higher earnings. These and associated results suggest that mistaken expectations lead to entry errors. As a test of external validity, future divorcees turn out to be financial optimists, indicating our measure captures an intrinsic psychological trait associated with rash decisions.

Published in

European Economic Review

DOI

https://doi.org/10.1016/j.euroecorev.2018.08.007

Subjects

Notes

Online Early

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