Extant evidence that the self-employed overestimate their returns by a greater margin than employees is consistent with two mutually inclusive possibilities. Self-employment may foster optimism or intrinsic optimists may be drawn to self-employment. Previous research is generally unable to disentangle these effects because of reliance on cross-sectional data. Using longitudinal data, this paper finds that employees who will be self-employed in the future overestimate their short-term financial wellbeing by more than those who never become self-employed. Optimism is higher still when self-employed. These results suggest that the greater optimism of the self-employed reflects both psychological disposition and environmental factors. By providing greater scope for optimism, self-employment entices the intrinsically optimistic.
Dawson, C., de Meza, D., Henley, A., & Arabsheibani, G. R. (2014). Entrepreneurship: cause and consequence of financial optimism. Journal of Economics and Management Strategy, 23(4), 717-742. https://doi.org/10.1111/jems.12076