Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96503
Authors: 
Brachert, Matthias
Hyll, Walter
Year of Publication: 
2014
Series/Report no.: 
IWH Discussion Papers 5/2014
Abstract: 
The majority of empirical studies make use of the assumption of stable preferences in searching for a relationship between risk attitude and the decision to become and stay an entrepreneur. Yet empirical evidence on this relationship is limited. In this paper, we show that entry into entrepreneurship itself plays a decisive role in shaping risk preferences. We find that becoming self-employed is indeed associated with a relative increase in risk attitudes, an increase that is quantitatively large and significant even after controlling for individual characteristics, different employment status, and duration of entrepreneurship. The findings suggest that studies assuming that risk attitudes are stable over time suffer from reverse causality; risk attitudes do not remain stable over time, and individual preferences change endogenously.
Subjects: 
endogenous preferences
risk attitudes
entrepreneurship
German Socio-Economic Panel
JEL: 
D03
D81
M13
Document Type: 
Working Paper

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