Entrepreneurship: Cause and Consequence of Financial Optimism

26 Pages Posted: 25 Oct 2014

See all articles by Christopher J. Dawson

Christopher J. Dawson

Swansea University

David de Meza

London School of Economics Department of Management

Andrew Henley

Cardiff Business School, Cardiff University; IZA Institute of Labor Economics

G. Reza Arabsheibani

Swansea University - School of Business and Economics; IZA Institute of Labor Economics

Date Written: Winter 2014

Abstract

Extant evidence that the self‐employed overestimate their returns by a greater margin than employees is consistent with two mutually inclusive possibilities. Self‐employment may foster optimism or intrinsic optimists may be drawn to self‐employment. Previous research is generally unable to disentangle these effects because of reliance on cross‐sectional data. Using longitudinal data, this paper finds that employees who will be self‐employed in the future overestimate their short‐term financial wellbeing by more than those who never become self‐employed. Optimism is higher still when self‐employed. These results suggest that the greater optimism of the self‐employed reflects both psychological disposition and environmental factors. By providing greater scope for optimism, self‐employment entices the intrinsically optimistic.

Suggested Citation

Dawson, Christopher J. and de Meza, David Emmanuel and Henley, Andrew and Arabsheibani, G. Reza, Entrepreneurship: Cause and Consequence of Financial Optimism (Winter 2014). Journal of Economics & Management Strategy, Vol. 23, Issue 4, pp. 717-742, 2014, Available at SSRN: https://ssrn.com/abstract=2514918 or http://dx.doi.org/10.1111/jems.12076

Christopher J. Dawson (Contact Author)

Swansea University ( email )

Singleton Park
Swansea, SA2 8PP
United Kingdom

David Emmanuel De Meza

London School of Economics Department of Management ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Andrew Henley

Cardiff Business School, Cardiff University ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

G. Reza Arabsheibani

Swansea University - School of Business and Economics ( email )

Singleton Park
Swansea, Wales SA2 8PP SA2 8PP
United Kingdom
+44 (0) 1792 513682 (Phone)
+44 (0) 1792 295872 (Fax)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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