Curb your enthusiasm: optimistic entrepreneurs earn less

Christopher Dawson, David de Meza, Andrew Henley and Reza (Gholamreza) Arabsheibani ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: financial optimism; expectations; entrepreneurs (search for similar items in EconPapers)
JEL-codes: D84 M13 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-sbm
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Citations: View citations in EconPapers (11)

Published in European Economic Review, January, 2019, 111, pp. 53-69. ISSN: 0014-2921

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:90264

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