Living Forever: Entrepreneurial Overconfidence at Older Ages
Patrick J. F. Groenen
Erasmus University Rotterdam (EUR)
Erasmus School of Economics; Erasmus Research Institute of Management (ERIM); University of Amsterdam - University of Amsterdam Business School
Matthijs J. H. M. Van der Loos
Erasmus University Rotterdam (EUR) - Department of Applied Economics; Erasmus Research Institute of Management (ERIM); Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)
Erasmus University Rotterdam (EUR) - Centre for Advanced Small Business Economics (CASBEC); Erasmus Research Institute of Management (ERIM); EIM Netherlands - Business and Policy Research; Tinbergen Institute
July 23, 2013
ERIM Report Series Reference No. ERS-2013-012-STR
Overconfidence has been proposed as an explanation for excess market entry by entrepreneurs and low returns in entrepreneurial activities. However, establishing that entrepreneurs are more overconfident than non-entrepreneurs requires the use of representative population samples; in addition, econometric endogeneity issues in survey data must be addressed. To overcome these methodological challenges, we use a measure of overconfidence that employs self-reports of life expectancy. These self-reports are compared to actual life spans in a large sample of the US population. We show that entrepreneurs are indeed more overconfident than non-entrepreneurs. By using fixed-effects panel regression—and thus by exploiting the longitudinal nature of our data—we provide evidence that changes in entrepreneurial status are not associated with changes in subjective life expectancy. These two findings in combination offer evidence that overconfident individuals self- select into entrepreneurship.
Keywords: entrepreneurship, selection, life expectancy, self-employment, overconfidenceworking papers series
Date posted: July 24, 2013
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