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Risk and Time Preferences of Entrepreneurs

Andersen, S.; Di Girolamo, A.; Harrison, G.W.; Lau, M.I.

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Authors

S. Andersen

A. Di Girolamo

G.W. Harrison



Abstract

To understand how small business entrepreneurs respond to government policy one has to know their risk and time preferences. Are they risk averse, or have high discount rates, such that they are hard to motivate? We have conducted a set of field experiments in Denmark that will allow a direct characterization of small business entrepreneurs in terms of these traits. We build on experimental tasks that are well established in the literature. The results do not suggest that small business entrepreneurs are more or less risk averse than the general population under the assumption of Expected Utility Theory. However, we generally find an S-shaped probability weighting function for both small business entrepreneurs and non-entrepreneurs, with entrepreneurs being more optimistic about the chance of occurrence for the best outcome in lotteries with real monetary outcomes. The results also point to a significant difference in individual discount rates between entrepreneurs and non-entrepreneurs: entrepreneurs are willing to wait longer for certain rewards than the general population.

Citation

Andersen, S., Di Girolamo, A., Harrison, G., & Lau, M. (2014). Risk and Time Preferences of Entrepreneurs. Theory and Decision, 77(3), 341-357. https://doi.org/10.1007/s11238-014-9446-z

Journal Article Type Article
Publication Date Oct 1, 2014
Deposit Date Jun 4, 2014
Publicly Available Date Mar 29, 2024
Journal Theory and Decision
Print ISSN 0040-5833
Electronic ISSN 1573-7187
Publisher Springer
Peer Reviewed Peer Reviewed
Volume 77
Issue 3
Pages 341-357
DOI https://doi.org/10.1007/s11238-014-9446-z
Public URL https://durham-repository.worktribe.com/output/1459446

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