Risk Attitudes and Private Business Equity

35 Pages Posted: 3 May 2012

See all articles by Frank M. Fossen

Frank M. Fossen

University of Nevada, Reno; IZA Institute of Labor Economics

Date Written: March 1, 2012

Abstract

Why do people engage in entrepreneurship and commit large parts of their personal wealth to their business, despite comparably low returns and high risk? This paper connects several streams of literature to shed some light on this puzzle and suggests possible future research avenues. Key insights from the literature are that entrepreneurs may operate in imperfect financial markets and that entrepreneurs are less risk-averse than the rest of the population. A focus of this paper is, therefore, on the role of heterogeneous risk attitudes in entrepreneurial decisions, specifically portfolio choice and the entry and exit decisions. Nonpecuniary benefits of entrepreneurship, such as being independent in the workplace, also contribute to an explanation of entrepreneurial behavior.

Keywords: Entrepreneurship, risk aversion, portfolio choice

JEL Classification: J23, G11, L26

Suggested Citation

Fossen, Frank M., Risk Attitudes and Private Business Equity (March 1, 2012). DIW Berlin Discussion Paper No. 1209, Available at SSRN: https://ssrn.com/abstract=2050399 or http://dx.doi.org/10.2139/ssrn.2050399

Frank M. Fossen (Contact Author)

University of Nevada, Reno ( email )

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HOME PAGE: http://business.unr.edu/faculty/ffossen/

IZA Institute of Labor Economics

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