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Living Forever: Entrepreneurial Overconfidence at Older Ages

Posted: 24 Jul 2013  

Patrick J. F. Groenen

Erasmus University Rotterdam (EUR)

Philipp Koellinger

Vrije Universiteit Amsterdam; Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

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)

Roy Thurik

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

Date Written: July 23, 2013

Abstract

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, overconfidence

Suggested Citation

Groenen, Patrick J. F. and Koellinger, Philipp and van der Loos, Matthijs J. H. M. and Thurik, Roy, Living Forever: Entrepreneurial Overconfidence at Older Ages (July 23, 2013). ERIM Report Series Reference No. ERS-2013-012-STR. Available at SSRN: https://ssrn.com/abstract=2297699

Patrick J. F. Groenen

Erasmus University Rotterdam (EUR) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Philipp Koellinger

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

HOME PAGE: http://www.philipp-koellinger.com

Erasmus School of Economics ( email )

Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Matthijs J. H. M. Van der Loos

Erasmus University Rotterdam (EUR) - Department of Applied Economics ( email )

Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Roy Thurik

Erasmus University Rotterdam (EUR) - Centre for Advanced Small Business Economics (CASBEC) ( email )

3000 DR Rotterdam
Netherlands
+31 10 408 2232 (Phone)
+31 10 408 9146 (Fax)

HOME PAGE: http://www.thurik.com

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

EIM Netherlands - Business and Policy Research

Postbus 7001
2701 AA Zoetermeer
Netherlands
+31 79 341 3634 (Phone)
+31 79 331 3742 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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