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Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics

Thomas Astebro (), Holger Herz, Ramana Nanda () and Roberto Weber ()

Journal of Economic Perspectives, 2014, vol. 28, issue 3, 49-70

Abstract: There is a growing body of evidence that many entrepreneurs seem to enter and persist in entrepreneurship despite earning low risk-adjusted returns. This has lead to attempts to provide explanations—using both standard economic theory and behavioral economics—for why certain individuals may be attracted to such an apparently unprofitable activity. Drawing on research in behavioral economics, in the sections that follow, we review three sets of possible interpretations for understanding the empirical facts related to the entry into, and persistence in, entrepreneurship. Differences in risk aversion provide a plausible and intuitive interpretation of entrepreneurial activity. In addition, a growing literature has begun to highlight the potential importance of overconfidence in driving entrepreneurial outcomes. Such a mechanism may appear at face value to work like a lower level of risk aversion, but there are clear conceptual differences—in particular, overconfidence likely arises from behavioral biases and misperceptions of probability distributions. Finally, nonpecuniary taste-based factors may be important in motivating both the decisions to enter into and to persist in entrepreneurship.

JEL-codes: D03 J23 L25 L26 M13 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/jep.28.3.49
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Working Paper: Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics (2015) Downloads
Working Paper: Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics (2014)
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