Loss aversion and risky entrepreneurship

Claudio Bonilla and Diego Fica

Finance Research Letters, 2022, vol. 48, issue C

Abstract: The rise of experimental economics has made us wonder if the traditional approach to studying economics under risk (expected utility and risk-averse agents) is the best way to represent actual behavior. In this paper, we introduce an alternative model of economics of entrepreneurship under risk using reference-dependence preferences and analyze if the basic comparative static results from the traditional model still hold under loss averse preferences. We find minor differences between what we know under risk aversion and what we get under loss aversion. This is a positive result, if we expect policies that promote entrepreneurship to be effective, no matter if the individual is risk or loss averse.

Keywords: Entrepreneurship; Risk; Loss aversion; Reference-dependence preferences (search for similar items in EconPapers)
JEL-codes: D81 L26 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322002331

DOI: 10.1016/j.frl.2022.102985

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