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Curb your enthusiasm: Optimistic entrepreneurs earn less

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

European Economic Review, 2019, vol. 111, issue C, 53-69

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
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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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