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.
- Financial optimism, expectations, entrepreneurs
Dawson, C., de Meza, D., Henley, A., & Arabsheibani, R. (2019). Curb Your Enthusiasm: Optimistic Entrepreneurs Earn Less. European Economic Review, 111, 53-69. https://doi.org/10.1016/j.euroecorev.2018.08.007