Foundations of entrepreneurship
Master Business Economics 2018-2019, KU Leuven
Prof. Melillo
1
,Table of Contents
Introduction........................................................................................................................5
Are entrepreneurs born or made...................................................................................................5
Big picture of the course................................................................................................................5
How to analyse a research paper...................................................................................................5
1. Why do some individuals become entrepreneurs and others don’t..................................6
Introduction........................................................................................................................6
Why do we care about entrepreneurship......................................................................................6
The promise of entrepreneurship as a field of research.................................................................6
Shane and Venkataraman: the entrepreneurial process.................................................................................6
What characterizes an entrepreneur...................................................................................7
Individual perspectives: how to identify a good entrepreneur......................................................7
Psychological perspective to who becomes an entrepreneur........................................................7
The 5 factor model of personality (Zhao and Seibert).....................................................................................7
Risk aversion.....................................................................................................................................................7
Need for achievement......................................................................................................................................8
Optimism..........................................................................................................................................................8
Limitations of the traits-based approach.........................................................................................................8
Economic perspective to who becomes an entrepreneur..............................................................8
Jack-of-all-trades model (Lazear).....................................................................................................................8
Key takeaways..................................................................................................................................................8
Economic perspective to who becomes an entrepreneur..............................................................9
(Because not every generalist chooses to become entrepreneur)..................................................................9
Does entrepreneurship pay?............................................................................................................................9
The entrepreneurship puzzle (Hamilton).........................................................................................................9
Economic explanations behind drug dealing and entrepreneurship...............................................................9
(Micro)-economics of entrepreneurship........................................................................................................10
The reward structure (Baumol)......................................................................................................................10
Key takeaways................................................................................................................................................10
Sociological perspective to who becomes an entrepreneur.........................................................11
Accidental entrepreneurship..........................................................................................................................11
Effectuation theory (entrepreneurial thinking)..............................................................................................11
Performance implications..............................................................................................................................11
2. How do individuals recognize entrepreneurial opportunities.........................................13
Where do entrepreneurial opportunities come from...................................................................13
Why are entrepreneurial opportunities discovered.....................................................................13
How do individuals discover entrepreneurial opportunities........................................................14
A model of the entrepreneurial opportunity recognition process................................................................14
Unlocking creativity.....................................................................................................................14
What influences creativity (innovation engine).............................................................................................14
How can you increase your imagination........................................................................................................15
Model of individual creativity by Teresa Amabile..........................................................................................15
What creative skills do innovative entrepreneurs possess?..........................................................................15
Reclaim your creative confidence..................................................................................................................15
2
, How does the context influence opportunity identification.........................................................16
2 types of entrepreneurs................................................................................................................................16
Which type of firm produces more entrepreneurs........................................................................................16
The public sector............................................................................................................................................16
The family.......................................................................................................................................................17
3. What factors lead to the successful establishment of a new venture (and what is the
impact of failure/ exit)......................................................................................................18
What factors determine the performance of newly established firms.........................................18
Drivers of entrepreneurial performance........................................................................................................18
Classic organizational ecology theory............................................................................................................18
Survival of the fittest (Gimeno et al.).............................................................................................................18
Ultimate measure of success..........................................................................................................................19
The evolution of entrepreneurial exit............................................................................................................19
Relation between entry and exit of entrepreneurship..................................................................................19
Shooting stars, uncertainty in hiring entrepreneurs (Melillo).......................................................................19
Relationship with Hamilton............................................................................................................................21
A psychological approach to understand entrepreneurial exit.....................................................21
The role of personality traits on entrepreneurship.......................................................................................21
Evolution of the psychological approach: cognition......................................................................................21
The effect of cognitive biases on exit.............................................................................................................22
Why cognitive biases can delay exit...............................................................................................................22
Other cognitive biases that characterise entrepreneurs...............................................................................22
Social factors & start-up performance.........................................................................................23
Liability of newness & start-up performance.................................................................................................23
Types of potential entrants into a market.....................................................................................................23
Human capital explanation of the spinout advantage...................................................................................24
Spinoffs & clusters: why do clusters emerge.................................................................................................24
How do social networks matter for performance?........................................................................................25
Pitching........................................................................................................................................25
Failure..........................................................................................................................................26
Learning from failure......................................................................................................................................26
Failure résumé................................................................................................................................................26
False myths.....................................................................................................................................................26
Guest lecture Capricorn: Introduction to venture capital...................................................27
Venture capital markets..............................................................................................................27
Basics of the VC model...................................................................................................................................27
Why to found a company...............................................................................................................................27
Types of money to finance your company.....................................................................................................27
Venture capital, not for all type of companies...............................................................................................28
Types of companies........................................................................................................................................29
Different type of VC’s/ investors....................................................................................................................29
Decision of making an investment...............................................................................................29
Capricorn investment criteria.........................................................................................................................30
Why do many investments fail.......................................................................................................................30
Hard work, little glamour.............................................................................................................30
Business model: how will you make money..................................................................................................31
No rooftop without foundations....................................................................................................................31
Hofstadter’s law.............................................................................................................................................31
Time to grow to 50M$....................................................................................................................................31
Valuation.....................................................................................................................................32
3
, Exit focus.....................................................................................................................................32
VC’s and entrepreneurs: a partnership........................................................................................33
The promise of entrepreneurship as a field of research...............................................................33
Why study Entrepreneurship?........................................................................................................................33
The existence, Discovery, and exploitation of entrepreneurial opportunities..............................................33
Extra readings...................................................................................................................34
The Big Five Personality Dimensions and Entrepreneurial Status: A meta- analytical Review......34
Entrepreneurship.........................................................................................................................35
Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-employment..............36
Do not survive the empirical test...................................................................................................................36
Do survive the empirical test..........................................................................................................................36
Drug Dealing and Legitimate Self-Employment............................................................................38
Causation and effectuation: Toward a theoretical shift from economic inevitability to
entrepreneurial contingency........................................................................................................39
Creativity and/or alertness: a reconsideration of the Schumpeterian entrepreneur....................40
Opportunity Recognition as Pattern Recognition: How Entrepreneurs “Connect the Dots” To
Identify New Business opportunities”..........................................................................................42
Research gap: factors for discovering opportunities.....................................................................................42
Why this paper is important...........................................................................................................................43
What are the practical implications of the paper?........................................................................................43
Entrepreneurial spawning: Public corporations and the genesis of new ventures.......................44
The small firm effect and the entrepreneurial spawning of scientists and engineers...................45
Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming
firms............................................................................................................................................46
Hypotheses.....................................................................................................................................................47
Shooting stars? Uncertainty in hiring entrepreneurs...................................................................48
Findings...........................................................................................................................................................48
Entrepreneurs’ optimism and new venture performance............................................................49
Over-optimism: explained..............................................................................................................................49
Dealing with failure: serial entrepreneurs and the cost of changing industries between ventures
....................................................................................................................................................51
Spawned with a silver spoon? Entrepreneurial performance and innovation in the medical device
industry.......................................................................................................................................52
Home sweet home: entrepreneurs’ location choices and the performance of their ventures......54
4
,Introduction
Are entrepreneurs born or made
Born: part of entrepreneurship can be attributed to genetics, inheritable
! Contextual effects, transitory phenomenon
Made: environment (context) influences likelihood that individuals become entrepreneurs
Entrepreneurship can be learned
Big picture of the course
Individuals + opportunities (+ performance)
Multi-disciplinary field: economic, psychologic, sociologic
How to analyse a research paper
Research problem (general topic)
Research questions
Theoretical contributions (answer of RQ)
o What (comprehensiveness, parsimony)
o How (are they related)
o Why (underlying theory)
o (who, where, when) (generalizability)
Relevance
Research gap
Findings
(Limitations & future research)
Practical implications
5
, 1. Why do some individuals become entrepreneurs and
others don’t
Introduction
Why do we care about entrepreneurship
Positive and negative impacts of entrepreneurship
Necessity driven (pushed)/ opportunity driven (pulled) entrepreneurship
How does entrepreneurship impact the economy
o Creative destruction
o Exploitation of knowledge externalities
The promise of entrepreneurship as a field of research
Shane and Venkataraman: the entrepreneurial process
The existence of entrepreneurial opportunities
o Creation of new information
o Exploitation of market inefficiencies
o Institutional change
The discovery of entrepreneurial opportunities
o Information corridors
o Cognitive properties
The exploitation of entrepreneurial opportunities
o Opportunity factors
o Entrepreneur factors
6
,What characterizes an entrepreneur
Individual perspectives: how to identify a good
entrepreneur
Personality characteristics are uncorrelated with entrepreneurial success
Entrepreneurial personality
Personality characteristics are correlated with becoming an entrepreneur
Psychological perspective to who becomes an
entrepreneur
Entrepreneurial personality
The 5 factor model of personality (Zhao and Seibert)
Challenge the thought that entrepreneurial personality doesn’t exist
Based on personality traits (individual-level factors, stable over time and across situations)
Neuroticism, extraversion, openness to experience, agreeableness, conscientiousness
Job matching
Relationship between these traits and professional choices
Entrepreneurs score low on neuroticism and agreeableness
Entrepreneurs score high on openness and conscientiousness
! Extraversion
Explanations for the proposed relationship
ASA framework
Limitations
Choice of the individual/ selection effect of the entrepreneurial market
Entrepreneurs have these traits/ need to have these traits
Other factors may play a role
Risk aversion
Entrepreneurs are less risk averse than employed
Entrepreneurs are those that accept and bear uncertainty
Risk takers
Economic perspective
Risk based on rational calculations
Psychologic perspective
Risk based on individual predispositions
Risk-taking is a predisposition rather than simply a situational factor (evolves over time)
Entrepreneurs are less risk-averse than managers
Contrasting empirical results
Assumption of human rationality in modern economic theory (Tverksy &
Kahneman)
Prospect theory
o Most people are loss adverse
7
, o They pay a premium to avoid the uncertainty
o Women are more risk averse
o The older you are, the more risk averse
Need for achievement
Entrepreneurs tend to have high need for achievement (but mixed findings)
Pay-for-performance
Not a stable personality trait (because can be learned)
Optimism
Entrepreneurs are more optimistic than others
! Over-optimism
Causes over-entry into entrepreneurship
Limitations of the traits-based approach
Personality
o Becoming an entrepreneur
o Entrepreneurial success
Diversity among entrepreneurs may be larger than differences between entrepreneurs and non-
entrepreneurs
There is no average or typical venture creation
Economic perspective to who becomes an entrepreneur
Entrepreneurial skills
Jack-of-all-trades model (Lazear)
Positive correlation between likelihood of entrepreneurship and number of previous positions
Variation in subjects studied is positively associated with individuals’ likelihood of becoming an
entrepreneur (multifaceted)
2 types of individuals
o Specialists
o Entrepreneurs (lower income)
Innovation and entrepreneurship are not identical, but go hand-in-hand
Implications
Generalist founders should create more successful firms
Entrepreneurs are made
New research on JAT model
Leaders (managers) are generalists
Managers that are more generalist are paid more
Generalists get better job offers than specialists (Merluzzi)
Key takeaways
An entrepreneurial personality exists
Possessing generalist skills seem more important than traits to predict success
You can learn to have entrepreneurial skills
You cannot learn to have an entrepreneurial personality
8
, Economic perspective to who becomes an entrepreneur
Incentives
(Because not every generalist chooses to become entrepreneur)
Does entrepreneurship pay?
Entrepreneurs have lower wages than employees
Agency models
Differences arise from differences in earnings-experience profiles across type of employment
Individual differences
Employers use steeper age-earnings profiles as incentive to exert effort
Agency problems are not present in self-employment
Self-employment earnings growth rates are flatter
Job matching and learning models (self-selection)
Differences arise from unobserved differences in individual abilities
Individual’s skills are experience goods (job mismatch)
Recent study
o Entrepreneurs come from both the top and the bottom of the ability
o There is both positive and negative selection in entrepreneurship
Superstars theory
Self-employed may earn more on average (mean)
May be attributed to the few extremes
No limitations to earnings in entrepreneurship
Greater earnings skew among the self-employed
Non-pecuniary benefits (theory of compensating differentials)
Preference for autonomy, job variety, flexibility
Other explanations
Over-optimism, over-confidence
Mis-measurement of earnings (under reporting of earnings because entrepreneurs consume
30% more food)
The entrepreneurship puzzle (Hamilton)
Entrepreneurial choice violates the risk-return hypothesis
Should be rewarded for a willingness to take on more risk
Explanation is in the non-pecuniary benefits
Self-employed are more satisfied with their work than wage workers (autonomy)
o Task variety
o Greater independence
o Procedural utility & intrinsic motivation
Economic explanations behind drug dealing and entrepreneurship
Entrepreneurial ability, preference for autonomy, risk-attitudes
9
Master Business Economics 2018-2019, KU Leuven
Prof. Melillo
1
,Table of Contents
Introduction........................................................................................................................5
Are entrepreneurs born or made...................................................................................................5
Big picture of the course................................................................................................................5
How to analyse a research paper...................................................................................................5
1. Why do some individuals become entrepreneurs and others don’t..................................6
Introduction........................................................................................................................6
Why do we care about entrepreneurship......................................................................................6
The promise of entrepreneurship as a field of research.................................................................6
Shane and Venkataraman: the entrepreneurial process.................................................................................6
What characterizes an entrepreneur...................................................................................7
Individual perspectives: how to identify a good entrepreneur......................................................7
Psychological perspective to who becomes an entrepreneur........................................................7
The 5 factor model of personality (Zhao and Seibert).....................................................................................7
Risk aversion.....................................................................................................................................................7
Need for achievement......................................................................................................................................8
Optimism..........................................................................................................................................................8
Limitations of the traits-based approach.........................................................................................................8
Economic perspective to who becomes an entrepreneur..............................................................8
Jack-of-all-trades model (Lazear).....................................................................................................................8
Key takeaways..................................................................................................................................................8
Economic perspective to who becomes an entrepreneur..............................................................9
(Because not every generalist chooses to become entrepreneur)..................................................................9
Does entrepreneurship pay?............................................................................................................................9
The entrepreneurship puzzle (Hamilton).........................................................................................................9
Economic explanations behind drug dealing and entrepreneurship...............................................................9
(Micro)-economics of entrepreneurship........................................................................................................10
The reward structure (Baumol)......................................................................................................................10
Key takeaways................................................................................................................................................10
Sociological perspective to who becomes an entrepreneur.........................................................11
Accidental entrepreneurship..........................................................................................................................11
Effectuation theory (entrepreneurial thinking)..............................................................................................11
Performance implications..............................................................................................................................11
2. How do individuals recognize entrepreneurial opportunities.........................................13
Where do entrepreneurial opportunities come from...................................................................13
Why are entrepreneurial opportunities discovered.....................................................................13
How do individuals discover entrepreneurial opportunities........................................................14
A model of the entrepreneurial opportunity recognition process................................................................14
Unlocking creativity.....................................................................................................................14
What influences creativity (innovation engine).............................................................................................14
How can you increase your imagination........................................................................................................15
Model of individual creativity by Teresa Amabile..........................................................................................15
What creative skills do innovative entrepreneurs possess?..........................................................................15
Reclaim your creative confidence..................................................................................................................15
2
, How does the context influence opportunity identification.........................................................16
2 types of entrepreneurs................................................................................................................................16
Which type of firm produces more entrepreneurs........................................................................................16
The public sector............................................................................................................................................16
The family.......................................................................................................................................................17
3. What factors lead to the successful establishment of a new venture (and what is the
impact of failure/ exit)......................................................................................................18
What factors determine the performance of newly established firms.........................................18
Drivers of entrepreneurial performance........................................................................................................18
Classic organizational ecology theory............................................................................................................18
Survival of the fittest (Gimeno et al.).............................................................................................................18
Ultimate measure of success..........................................................................................................................19
The evolution of entrepreneurial exit............................................................................................................19
Relation between entry and exit of entrepreneurship..................................................................................19
Shooting stars, uncertainty in hiring entrepreneurs (Melillo).......................................................................19
Relationship with Hamilton............................................................................................................................21
A psychological approach to understand entrepreneurial exit.....................................................21
The role of personality traits on entrepreneurship.......................................................................................21
Evolution of the psychological approach: cognition......................................................................................21
The effect of cognitive biases on exit.............................................................................................................22
Why cognitive biases can delay exit...............................................................................................................22
Other cognitive biases that characterise entrepreneurs...............................................................................22
Social factors & start-up performance.........................................................................................23
Liability of newness & start-up performance.................................................................................................23
Types of potential entrants into a market.....................................................................................................23
Human capital explanation of the spinout advantage...................................................................................24
Spinoffs & clusters: why do clusters emerge.................................................................................................24
How do social networks matter for performance?........................................................................................25
Pitching........................................................................................................................................25
Failure..........................................................................................................................................26
Learning from failure......................................................................................................................................26
Failure résumé................................................................................................................................................26
False myths.....................................................................................................................................................26
Guest lecture Capricorn: Introduction to venture capital...................................................27
Venture capital markets..............................................................................................................27
Basics of the VC model...................................................................................................................................27
Why to found a company...............................................................................................................................27
Types of money to finance your company.....................................................................................................27
Venture capital, not for all type of companies...............................................................................................28
Types of companies........................................................................................................................................29
Different type of VC’s/ investors....................................................................................................................29
Decision of making an investment...............................................................................................29
Capricorn investment criteria.........................................................................................................................30
Why do many investments fail.......................................................................................................................30
Hard work, little glamour.............................................................................................................30
Business model: how will you make money..................................................................................................31
No rooftop without foundations....................................................................................................................31
Hofstadter’s law.............................................................................................................................................31
Time to grow to 50M$....................................................................................................................................31
Valuation.....................................................................................................................................32
3
, Exit focus.....................................................................................................................................32
VC’s and entrepreneurs: a partnership........................................................................................33
The promise of entrepreneurship as a field of research...............................................................33
Why study Entrepreneurship?........................................................................................................................33
The existence, Discovery, and exploitation of entrepreneurial opportunities..............................................33
Extra readings...................................................................................................................34
The Big Five Personality Dimensions and Entrepreneurial Status: A meta- analytical Review......34
Entrepreneurship.........................................................................................................................35
Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-employment..............36
Do not survive the empirical test...................................................................................................................36
Do survive the empirical test..........................................................................................................................36
Drug Dealing and Legitimate Self-Employment............................................................................38
Causation and effectuation: Toward a theoretical shift from economic inevitability to
entrepreneurial contingency........................................................................................................39
Creativity and/or alertness: a reconsideration of the Schumpeterian entrepreneur....................40
Opportunity Recognition as Pattern Recognition: How Entrepreneurs “Connect the Dots” To
Identify New Business opportunities”..........................................................................................42
Research gap: factors for discovering opportunities.....................................................................................42
Why this paper is important...........................................................................................................................43
What are the practical implications of the paper?........................................................................................43
Entrepreneurial spawning: Public corporations and the genesis of new ventures.......................44
The small firm effect and the entrepreneurial spawning of scientists and engineers...................45
Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming
firms............................................................................................................................................46
Hypotheses.....................................................................................................................................................47
Shooting stars? Uncertainty in hiring entrepreneurs...................................................................48
Findings...........................................................................................................................................................48
Entrepreneurs’ optimism and new venture performance............................................................49
Over-optimism: explained..............................................................................................................................49
Dealing with failure: serial entrepreneurs and the cost of changing industries between ventures
....................................................................................................................................................51
Spawned with a silver spoon? Entrepreneurial performance and innovation in the medical device
industry.......................................................................................................................................52
Home sweet home: entrepreneurs’ location choices and the performance of their ventures......54
4
,Introduction
Are entrepreneurs born or made
Born: part of entrepreneurship can be attributed to genetics, inheritable
! Contextual effects, transitory phenomenon
Made: environment (context) influences likelihood that individuals become entrepreneurs
Entrepreneurship can be learned
Big picture of the course
Individuals + opportunities (+ performance)
Multi-disciplinary field: economic, psychologic, sociologic
How to analyse a research paper
Research problem (general topic)
Research questions
Theoretical contributions (answer of RQ)
o What (comprehensiveness, parsimony)
o How (are they related)
o Why (underlying theory)
o (who, where, when) (generalizability)
Relevance
Research gap
Findings
(Limitations & future research)
Practical implications
5
, 1. Why do some individuals become entrepreneurs and
others don’t
Introduction
Why do we care about entrepreneurship
Positive and negative impacts of entrepreneurship
Necessity driven (pushed)/ opportunity driven (pulled) entrepreneurship
How does entrepreneurship impact the economy
o Creative destruction
o Exploitation of knowledge externalities
The promise of entrepreneurship as a field of research
Shane and Venkataraman: the entrepreneurial process
The existence of entrepreneurial opportunities
o Creation of new information
o Exploitation of market inefficiencies
o Institutional change
The discovery of entrepreneurial opportunities
o Information corridors
o Cognitive properties
The exploitation of entrepreneurial opportunities
o Opportunity factors
o Entrepreneur factors
6
,What characterizes an entrepreneur
Individual perspectives: how to identify a good
entrepreneur
Personality characteristics are uncorrelated with entrepreneurial success
Entrepreneurial personality
Personality characteristics are correlated with becoming an entrepreneur
Psychological perspective to who becomes an
entrepreneur
Entrepreneurial personality
The 5 factor model of personality (Zhao and Seibert)
Challenge the thought that entrepreneurial personality doesn’t exist
Based on personality traits (individual-level factors, stable over time and across situations)
Neuroticism, extraversion, openness to experience, agreeableness, conscientiousness
Job matching
Relationship between these traits and professional choices
Entrepreneurs score low on neuroticism and agreeableness
Entrepreneurs score high on openness and conscientiousness
! Extraversion
Explanations for the proposed relationship
ASA framework
Limitations
Choice of the individual/ selection effect of the entrepreneurial market
Entrepreneurs have these traits/ need to have these traits
Other factors may play a role
Risk aversion
Entrepreneurs are less risk averse than employed
Entrepreneurs are those that accept and bear uncertainty
Risk takers
Economic perspective
Risk based on rational calculations
Psychologic perspective
Risk based on individual predispositions
Risk-taking is a predisposition rather than simply a situational factor (evolves over time)
Entrepreneurs are less risk-averse than managers
Contrasting empirical results
Assumption of human rationality in modern economic theory (Tverksy &
Kahneman)
Prospect theory
o Most people are loss adverse
7
, o They pay a premium to avoid the uncertainty
o Women are more risk averse
o The older you are, the more risk averse
Need for achievement
Entrepreneurs tend to have high need for achievement (but mixed findings)
Pay-for-performance
Not a stable personality trait (because can be learned)
Optimism
Entrepreneurs are more optimistic than others
! Over-optimism
Causes over-entry into entrepreneurship
Limitations of the traits-based approach
Personality
o Becoming an entrepreneur
o Entrepreneurial success
Diversity among entrepreneurs may be larger than differences between entrepreneurs and non-
entrepreneurs
There is no average or typical venture creation
Economic perspective to who becomes an entrepreneur
Entrepreneurial skills
Jack-of-all-trades model (Lazear)
Positive correlation between likelihood of entrepreneurship and number of previous positions
Variation in subjects studied is positively associated with individuals’ likelihood of becoming an
entrepreneur (multifaceted)
2 types of individuals
o Specialists
o Entrepreneurs (lower income)
Innovation and entrepreneurship are not identical, but go hand-in-hand
Implications
Generalist founders should create more successful firms
Entrepreneurs are made
New research on JAT model
Leaders (managers) are generalists
Managers that are more generalist are paid more
Generalists get better job offers than specialists (Merluzzi)
Key takeaways
An entrepreneurial personality exists
Possessing generalist skills seem more important than traits to predict success
You can learn to have entrepreneurial skills
You cannot learn to have an entrepreneurial personality
8
, Economic perspective to who becomes an entrepreneur
Incentives
(Because not every generalist chooses to become entrepreneur)
Does entrepreneurship pay?
Entrepreneurs have lower wages than employees
Agency models
Differences arise from differences in earnings-experience profiles across type of employment
Individual differences
Employers use steeper age-earnings profiles as incentive to exert effort
Agency problems are not present in self-employment
Self-employment earnings growth rates are flatter
Job matching and learning models (self-selection)
Differences arise from unobserved differences in individual abilities
Individual’s skills are experience goods (job mismatch)
Recent study
o Entrepreneurs come from both the top and the bottom of the ability
o There is both positive and negative selection in entrepreneurship
Superstars theory
Self-employed may earn more on average (mean)
May be attributed to the few extremes
No limitations to earnings in entrepreneurship
Greater earnings skew among the self-employed
Non-pecuniary benefits (theory of compensating differentials)
Preference for autonomy, job variety, flexibility
Other explanations
Over-optimism, over-confidence
Mis-measurement of earnings (under reporting of earnings because entrepreneurs consume
30% more food)
The entrepreneurship puzzle (Hamilton)
Entrepreneurial choice violates the risk-return hypothesis
Should be rewarded for a willingness to take on more risk
Explanation is in the non-pecuniary benefits
Self-employed are more satisfied with their work than wage workers (autonomy)
o Task variety
o Greater independence
o Procedural utility & intrinsic motivation
Economic explanations behind drug dealing and entrepreneurship
Entrepreneurial ability, preference for autonomy, risk-attitudes
9
