Posted: 24 Jul 2013
Date Written: July 23, 2013
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: 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