Living Forever: Entrepreneurial Overconfidence at Older Ages

Niels Rietveld, Patrick Groenen (), Philipp Koellinger, Matthijs van der Loos and Roy Thurik

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: Overconfidence has been proposed as an explanation for excess market entry by entrepreneurs and low returns in entrepreneurial activities. However, establishing that entrepreneurs are more overconfident than non-entrepreneurs requires the use of representative population samples; in addition, econometric endogeneity issues in survey data must be addressed. To overcome these methodological challenges, we use a measure of overconfidence that employs self-reports of life expectancy. These self-reports are compared to actual life spans in a large sample of the US population. We show that entrepreneurs are indeed more overconfident than non-entrepreneurs. By using fixed-effects panel regression—and thus by exploiting the longitudinal nature of our data—we provide evidence that changes in entrepreneurial status are not associated with changes in subjective life expectancy. These two findings in combination offer evidence that overconfident individuals self- select into entrepreneurship.

Keywords: entrepreneurship; life expectancy; overconfidence; selection; self-employment (search for similar items in EconPapers)
JEL-codes: D21 L20 (search for similar items in EconPapers)
Date: 2013-07-23
New Economics Papers: this item is included in nep-age, nep-ent and nep-hea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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