Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics

By Tom Åstebro, Holger Herz, Ramana Nanda, Roberto Weber. 2014

312 citations recorded by the source corpus.

There is a growing body of evidence that many entrepreneurs seem to enter and persist in entrepreneurship despite earning low risk-adjusted returns. This has lead to attempts to provide explanations—using both standard economic theory and behavioral economics—for why certain individuals may be attracted to such an apparently unprofitable activity. Drawing on research in behavioral economics, in the sections that follow, we review three sets of possible interpretations for understanding the empirical facts related to the entry into, and persistence in, entrepreneurship. Differences in risk aversion provide a plausible and intuitive interpretation of entrepreneurial activity. In addition, a growing literature has begun to highlight the potential importance of overconfidence in driving entrepreneurial outcomes. Such a mechanism may appear at face value to work like a lower level of risk aversion, but there are clear conceptual differences—in particular, overconfidence likely arises from behavioral biases and misperceptions of probability distributions. Finally, nonpecuniary taste-based factors may be important in motivating both the decisions to enter into and to persist in entrepreneurship.

Subfields: Education, General Decision Sciences, Management of Technology and Innovation

View Paper: https://www.semanticscholar.org/paper/4b12d8aa0bf4784166bd56d1d60dbe3cf44e723c

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In Education

Petri Rouvinen

In General Decision Sciences

In Management of Technology and Innovation

Citations in the corpus

Psychology-based Models of Asset Prices and Trading Volume (2018, background): “Entrepreneurs’ beliefs indeed exhibit an optimistic bias of this kind (Astebro et al., 2014).”
Personality Traits of Entrepreneurs: A Review of Recent Literature (2018, unknown): “Optimism refers to a general disposition toward having unrealistic beliefs in good outcomes, while Åstebro et al. (2014) use Moore and Healy’s (2008) framework of overconfidence as expressions of overestimation and over-placement.”
Public policy to promote entrepreneurship: a call to arms (2016, unknown): “The figure is taken from Åstebro et al. (2014) and is reproduced below as Fig.”
Does innovativeness reduce startup survival rates (2015, background): “…Subjective exit; Risk: Industry exit) also (indirectly) control for entrepreneurial over-optimism (for a recent summary of this behavioral bias, see Åstebro et al., 2014): A linear combination of the industry failure rate and an entrepreneur's self-assessment of his venture's failure likelihood…”
Immigrant entrepreneurship in America: Evidence from the survey of business owners 2007 & 2012 (2020, unknown): “Entrepreneurial Personality: A substantial literature, reviewed by Åstebro et al. (2014), explores the degree to which entrepreneurs have 2 Brown et al. (2018) consider the 2007 SBO and 2014 Annual Survey of Entrepreneurs.”
Personality trait differences across types of entrepreneurs: a systematic literature review (2021, background): “The studies often used self-reported measures, to which entrepreneurs typically respond with overconfidence (Astebro et al. 2014) and, therefore, biased judgments.”