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Overoptimistic Entrepreneurs:Predicting Wellbeing Consequences of Self-Employment

Reto Odermatt (), Nattavudh Powdthavee () and Alois Stutzer ()

PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: The formation of expectations is a fundamental part of the process when people decide about engaging in an entrepreneurial venture. We evaluate the accuracy of newly self-employed people's predictions of their overall future wellbeing. Based on individual panel data for Germany, we find that they are overly optimistic when we compare their predicted life satisfaction with their actual life satisfaction five years later on. This overoptimism also holds for those entrepreneurs who successfully remain in business for at least five years. A possible reason might be that they underestimate the heavy workload reflected in higher working hours than desired and the drop in leisure satisfaction.

Keywords: Adaptation; Overoptimism; Life Satisfaction; Projection Bias; Wellbeing; Selfemployed (search for similar items in EconPapers)
JEL-codes: I31 L26 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2017-10, Revised 2017-10
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Published in PIER Discussion Paper Series

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