Curb Your Enthusiasm: Optimistic Entrepreneurs Earn Less

Christopher Dawson, David de Meza, Andrew Henley, Reza Arabsheibani

Research output: Contribution to journalArticle

2 Citations (Scopus)
201 Downloads (Pure)

Abstract

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.
Original languageEnglish
Pages (from-to)53-69
Number of pages17
JournalEuropean Economic Review
Volume111
Early online date26 Sep 2018
DOIs
Publication statusPublished - 1 Jan 2019

Keywords

  • Financial optimism, expectations, entrepreneurs

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