Risk, uncertainty, and entrepreneurship: Evidence from a lab-in-the-field experiment

Martin Koudstaal, Randolph Sloof, Mirjam Van Praag

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Theory predicts that entrepreneurs have distinct attitudes toward 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 D 21288). 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.

Original languageEnglish
Pages (from-to)2897-2915
Number of pages19
JournalManagement Science
Volume62
Issue number10
DOIs
Publication statusPublished - 1 Oct 2016
Externally publishedYes

Keywords

  • Ambiguity aversion
  • Entrepreneurs
  • Lab-in-the field experiment
  • Loss aversion
  • Managers
  • Risk aversion

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