Risk, Uncertainty and Entrepreneurship: Evidence from a Lab-in-the-Field Experiment

Martin Koudstaal (), Randolph Sloof and Mirjam Praag
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Martin Koudstaal: University of Amsterdam

No 8577, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Theory predicts that entrepreneurs have distinct attitudes towards risk and uncertainty, but empirical evidence is mixed. To better understand the unique behavioral characteristics of entrepreneurs and the causes of these mixed results, we perform a large 'lab-in-the-field' experiment comparing entrepreneurs to managers – a suitable comparison group – and employees (n = 2288). The results indicate that entrepreneurs perceive themselves as less risk averse than managers and employees, in line with common wisdom. However, when using experimental incentivized measures, the differences are subtler. Entrepreneurs are only found to be unique in their lower degree of loss aversion, and not in their risk or ambiguity aversion. This combination of results might be explained by our finding that perceived risk attitude is not only correlated to risk aversion but also to loss aversion. Overall, we therefore suggest using a broader definition of risk that captures this unique feature of entrepreneurs; their willingness to risk losses.

Keywords: ambiguity aversion; loss aversion; risk aversion; managers; entrepreneurs; lab-in-the-field experiment (search for similar items in EconPapers)
JEL-codes: C93 D03 L26 M13 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-10
New Economics Papers: this item is included in nep-cbe, nep-ent, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Management Science, 2016, 62 (10), 2897 - 2915

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Related works:
Journal Article: Risk, Uncertainty, and Entrepreneurship: Evidence from a Lab-in-the-Field Experiment (2016)
Working Paper: Risk, Uncertainty and Entrepreneurship: Evidence From a Lab-in-the-Field Experiment (2014)
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